SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
          OF THE SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                   For the fiscal year ended December 31, 2000

                                       OR

[  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                         Commission file number 1-10311

                         KANEB PIPE LINE PARTNERS, L.P.

             (Exact name of Registrant as specified in its Charter)

         Delaware                                                75-2287571
(State or other jurisdiction of                                (IRS Employer
incorporation  or  organization)                            Identification No.)

2435 North Central Expressway
Richardson, Texas                                                    75080
(Address of principal executive offices)                           (zip code)

       Registrant's telephone number, including area code: (972) 699-4000

Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange
Title of each class                                    on which registered
      Units                                            New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of  Regulation  S-K  (Subsection  229.405 of this  chapter) is not contained
herein,  and will not be contained,  to the best of registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.[X]

     Aggregate  market value of the voting Units held by  non-affiliates  of the
registrant: $494,132,366. This figure is estimated as of March 6, 2001, at which
date the closing price of the Registrant's  Units on the New York Stock Exchange
was $33.39 per Unit and assumes that only the General  Partner of the Registrant
(the "General  Partner"),  officers and directors of the General Partner and its
parent and wholly owned  subsidiaries of the General Partner and its parent were
affiliates.

     Number of Units of the Registrant outstanding at March 6, 2001: 20,285,090.


<PAGE>
Item I.    Business


General

         Kaneb Pipe Line Partners,  L.P., a Delaware  limited  partnership  (the
"Partnership"),  is engaged in the refined petroleum  products pipeline business
and the terminaling of petroleum products and specialty liquids. The Partnership
was formed in September 1989 to acquire, own and operate the pipeline system and
operations  that had been  previously  conducted by Kaneb Pipe Line  Company,  a
Delaware  corporation  ("KPL"),  since 1953.  KPL owns a combined 2% interest as
general partner of the Partnership and of Kaneb Pipe Line Operating Partnership,
L.P.,  a Delaware  limited  partnership  ("KPOP").  The  Partnership's  pipeline
operations  are conducted  through KPOP,  of which the  Partnership  is the sole
limited partner and KPL is the sole general partner. The terminaling business of
the Partnership is conducted  through Support Terminals  Operating  Partnership,
L.P. ("STOP"),  and its affiliated  partnerships and corporate  entities,  which
operate under the trade names "ST Services" and "StanTrans," among others.  KPOP
and  STOP  are,  collectively  with  their  subsidiaries,  referred  to  as  the
"Operating  Partnerships."  KPL is a wholly-owned  subsidiary of Kaneb Services,
Inc., a Delaware corporation ("Kaneb") (NYSE: KAB).


Products Pipeline Business

         Introduction

         The  Partnership's   pipeline   business  consists   primarily  of  the
transportation  of refined  petroleum  products  as a common  carrier in Kansas,
Nebraska,   Iowa,  South  Dakota,  North  Dakota,   Colorado  and  Wyoming.  The
Partnership  owns and operates two common carrier  pipelines  (the  "Pipelines")
described below.

         East Pipeline

         Construction  of the East  Pipeline  commenced in the 1950s with a line
from southern Kansas to Geneva,  Nebraska.  During the 1960s,  the East Pipeline
was extended north to its present  terminus at Jamestown,  North Dakota.  In the
1980's, the 8" line from Geneva,  Nebraska to North Platte, Nebraska and the 16"
line from McPherson,  Kansas to Geneva,  Nebraska were built and the Partnership
acquired a 6" pipeline from Champlin Oil Company,  a portion of which originally
ran  south  from  Geneva,   Nebraska  through  Windom,   Kansas  terminating  in
Hutchinson,  Kansas. In 1997, the Partnership completed construction of a new 6"
pipeline from Conway,  Kansas to Windom, Kansas (approximately 22 miles north of
Hutchinson)  that allows the  Hutchinson  terminal to be supplied  directly from
McPherson;  a significantly  shorter route than was previously used. As a result
of this pipeline becoming operational, a 158 mile segment of the former Champlin
line was shut down,  including a terminal  located at  Superior,  Nebraska.  The
other end of the line runs northeast  approximately 175 miles, crossing the main
pipeline  near  Osceola,  Nebraska,  continuing  through a terminal at Columbus,
Nebraska, and later interconnecting with the Partnership's  Yankton/Milford line
to terminate at Rock Rapids,  Iowa. In December  1998,  KPOP acquired from Amoco
Oil Company a 175 mile  pipeline  that runs from Council  Bluffs,  Iowa to Sioux
Falls,  South Dakota and the terminal at Sioux Falls. On December 31, 1998 KPOP,
pursuant  to  its  option,   purchased  the  203  mile  North  Platte  line  for
approximately  $5 million at the end of a lease.  In January  1999, a connection
was  completed  to  service  the  Sioux  Falls  terminal  through  the main East
Pipeline.

         The East  Pipeline  system  also  consists of 16 product  terminals  in
Kansas,  Nebraska,  Iowa,  South  Dakota and North  Dakota  with  total  storage
capacity of approximately 3.5 million barrels and an additional 22 product tanks
with total storage capacity of approximately  1,006,000 barrels at its tank farm
installations at McPherson and El Dorado, Kansas. The system also has six origin
pump  stations in Kansas and 38 booster  pump  stations  throughout  the system.
Additionally,  the system maintains various office and warehouse facilities, and
an extensive  quality control  laboratory.  KPOP owns the entire 2,090 mile East
Pipeline.  KPOP leases office space for its operating  headquarters  in Wichita,
Kansas.

         The East Pipeline  transports  refined  petroleum  products,  including
propane,  received  from  refineries  in southeast  Kansas and other  connecting
pipelines  to  its  terminals  along  the  system  and  to  receiving   pipeline
connections in Kansas.  Shippers on the East Pipeline  obtain refined  petroleum
products  from  refineries  connected  to the East  Pipeline  or  through  other
pipelines directly connected to the pipeline system.  Five connecting  pipelines
can deliver  propane for shipment  through the East Pipeline from gas processing
plants in Texas, New Mexico, Oklahoma and Kansas.
<PAGE>
         West Pipeline

         KPOP  acquired  the West  Pipeline in February  1995,  through an asset
purchase  from Wyco Pipe Line  Company  for a purchase  price of $27.1  million,
increasing the Partnership's  pipeline business in South Dakota and expanding it
into Wyoming and Colorado.  The West Pipeline system includes  approximately 550
miles of pipeline in Wyoming,  Colorado  and South  Dakota,  four truck  loading
terminals  and numerous pump stations  situated  along the system.  The system's
four  product  terminals  have a total  storage  capacity  of over  1.7  million
barrels.

         The West Pipeline originates at Casper, Wyoming and travels east to the
Strouds Station,  where it serves as a connecting  point with Sinclair's  Little
America Refinery and the Seminoe Pipeline that transports product from Billings,
Montana area  refineries.  From Strouds,  the West Pipeline  continues  easterly
through its 8" line to Douglas,  Wyoming,  where a 6" pipeline  branches  off to
serve the  Partnership's  Rapid City,  South Dakota terminal  approximately  190
miles away. The Rapid City terminal has a three bay,  bottom-loading  truck rack
and storage tank  capacity of 256,000  barrels.  The 6" pipeline  also  receives
product  from  Wyoming  Refining's  pipeline at a  connection  located  near the
Wyoming/South Dakota border,  approximately 30 miles south of Wyoming Refining's
Newcastle,  Wyoming  Refinery.  From  Douglas,  the  Partnership's  8"  pipeline
continues southward through a delivery point at the Burlington Northern junction
to the  terminal at  Cheyenne,  Wyoming.  The  Cheyenne  terminal has a two bay,
bottom-loading  truck rack,  storage tank capacity of 345,000 barrels and serves
as a receiving  point for  products  from the  Frontier  Oil & Refining  Company
refinery at Cheyenne,  as well as a product delivery point to Conoco's  Cheyenne
Pipeline.  From the  Cheyenne  terminal,  the 8"  pipeline  extends  south  into
Colorado to the Dupont  Terminal  located in the Denver  metropolitan  area. The
Dupont Terminal is the largest terminal on the West Pipeline system,  with a six
bay,  bottom-loading  truck rack and tankage capacity of 692,000 barrels. The 8"
pipeline  continues to the Commerce  City  Station,  where the West Pipeline can
receive from and transfer  product to the Ultramar  Diamond  Shamrock and Conoco
refineries and the Phillips  Petroleum  Terminal.  From Commerce City, a 6" line
continues south 90 miles where the system  terminates at the Fountain,  Colorado
Terminal  serving the Colorado  Springs area.  The Fountain  Terminal has a five
bay, bottom-loading truck rack and storage tank capacity of 366,000 barrels.

         The West Pipeline system parallels the  Partnership's  East Pipeline to
the west. The East Pipeline's North Platte line terminates in western  Nebraska,
approximately 200 miles east of the West Pipeline's Cheyenne,  Wyoming Terminal.
Conoco's  Cheyenne Pipeline runs from west to east from the Cheyenne Terminal to
near the East Pipeline's North Platte  Terminal,  although a portion of the line
from Sidney,  Nebraska  (approximately  100 miles from Cheyenne) to North Platte
has been deactivated. The West Pipeline serves Denver and other eastern Colorado
markets and supplies jet fuel to Ellsworth  Air Force Base at Rapid City,  South
Dakota, as compared to the East Pipeline's  largely  agricultural  service area.
The West  Pipeline has a relatively  small number of shippers,  who,  with a few
exceptions, are also shippers on the Partnership's East Pipeline system.


         Other Systems

         The  Partnership  also owns three  single-use  pipelines,  located near
Umatilla, Oregon; Rawlins, Wyoming and Pasco, Washington, each of which supplies
diesel fuel to a railroad fueling facility.  The Oregon and Washington lines are
fully  automated,  however  the  Wyoming  line  utilizes a  coordinated  startup
procedure between the refinery and the railroad. For the year ended December 31,
2000, these three systems combined transported a total of 3.7 million barrels of
diesel fuel, representing an aggregate of $1.5 million in revenues.

         Pipelines Products and Activities

         The Pipelines' revenues are based upon volumes and distances of product
shipped.  The  following  table  reflects  the total  volume and barrel miles of
refined  petroleum  products shipped and total operating  revenues earned by the
Pipelines for each of the periods indicated:

<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                               ------------------------------------------------------------------------------------
                                    2000             1999              1998             1997              1996
                               -------------     -------------    --------------    -------------    --------------
<S>                            <C>               <C>              <C>               <C>              <C>
Volume (1)...............             89,192            85,356            77,965           69,984            73,839
Barrel miles (2)............          17,843            18,440            17,007           16,144            16,735
Revenues (3)................         $70,685           $67,607           $63,421          $61,320           $63,441

</TABLE>

(1)  Volumes are expressed in thousands of barrels of refined petroleum product.

(2)  Barrel  miles are shown in  millions.  A barrel mile is the movement of one
     barrel of refined petroleum product one mile.

(3)  Revenues are expressed in thousands of dollars.

         The following  table sets forth volumes of propane and various types of
other refined petroleum products transported by the Pipelines during each of the
periods indicated:

<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                                                              (Thousands of Barrels)
                               ------------------------------------------------------------------------------------
                                    2000             1999              1998             1997              1996
                               -------------     -------------    --------------    -------------    --------------
<S>                            <C>               <C>              <C>               <C>              <C>
Gasoline....................          44,215            41,472            37,983           32,237            36,063
Diesel and fuel oil.........          41,087            40,435            36,237           33,541            32,934
Propane.....................           3,890             3,449             3,745            4,206             4,842
                               -------------     -------------    --------------    -------------    --------------
Total.......................          89,192            85,356            77,965           69,984            73,839
                               =============     =============    ==============    =============    ==============
</TABLE>

         Diesel  and  fuel  oil  are  used  in  farm  machinery  and  equipment,
over-the-road  transportation,   railroad  fueling  and  residential  fuel  oil.
Gasoline is primarily used in over-the-road  transportation  and propane is used
for crop drying,  residential heating and to power irrigation equipment. The mix
of refined petroleum products delivered varies seasonally,  with gasoline demand
peaking in early summer,  diesel fuel demand  peaking in late summer and propane
demand higher in the fall. In addition,  weather  conditions in the areas served
by the East  Pipeline  affect  both the  demand  for and the mix of the  refined
petroleum  products delivered through the East Pipeline,  although  historically
any overall  impact on the total volumes  shipped has been  short-term.  Tariffs
charged to shippers for  transportation of products do not vary according to the
type of product delivered.


         Maintenance and Monitoring

         The  Pipelines  have been  constructed  and are  maintained in a manner
consistent  with  applicable  Federal,  state  and local  laws and  regulations,
standards  prescribed by the American Petroleum  Institute and accepted industry
practice.   Further,  protective  measures  are  taken  and  routine  preventive
maintenance is performed on the Pipelines,  in order to prolong the useful lives
of the Pipelines. Such measures includes cathodic protection to prevent external
corrosion,  inhibitors to prevent internal corrosion and periodic  inspection of
the Pipelines. Additionally, the Pipelines are patrolled at regular intervals to
identify equipment or activities by third parties that, if left unchecked, could
result in encroachment upon the Pipeline's  rights-of-way and possible damage to
the Pipelines.

         The Partnership uses a  state-of-the-art  Supervisory  Control and Data
Acquisition remote supervisory control software program to continuously  monitor
and control the  Pipelines  from the Wichita,  Kansas  headquarters.  The system
monitors  quantities  of refined  petroleum  products  injected in and delivered
through  the  Pipelines  and  automatically  signals  the  Wichita  headquarters
personnel upon deviations from normal operations that requires attention.

         Pipeline Operations

         Both the East Pipeline and the West Pipeline are  interstate  pipelines
and thus  subject to Federal  regulation  by such  governmental  agencies as the
Federal Energy Regulatory Commission ("FERC"), the Department of Transportation,
and the  Environmental  Protection  Agency.  Additionally,  the West Pipeline is
subject to state regulation of certain  intrastate rates in Colorado and Wyoming
and  the  East  Pipeline  is  subject  to  state   regulation  in  Kansas.   See
"Regulation."

         Except  for  the  three   single-use   pipelines  and  certain  ethanol
facilities,  all of the  Partnership's  pipeline  operations  constitute  common
carrier  operations and are subject to Federal tariff  regulation.  In May 1998,
KPOP was  authorized by the FERC to adopt  market-based  rates in  approximately
one-half  of its  markets.  Also,  certain  of  its  intrastate  common  carrier
operations are subject to state tariff regulation. Common carrier activities are
those under which transportation through the Pipelines is available at published
tariffs  filed,  in the case of interstate  shipments,  with the FERC, or in the
case of intrastate shipments in Kansas,  Colorado and Wyoming, with the relevant
state authority,  to any shipper of refined petroleum products who requests such
services and satisfies the conditions and specifications for transportation.

         In general,  a shipper on one of the Pipelines delivers products to the
pipeline from refineries or third party pipelines that connect to the Pipelines.
The Pipelines'  operations also include 20 truck loading terminals through which
refined  petroleum  products are delivered to storage tanks and then loaded into
petroleum  transport trucks.  Five of the 20 terminals also receive propane into
storage tanks and then load it into transport trucks. Tariffs for transportation
are charged to shippers based upon  transportation from the origination point on
the  pipeline to the point of delivery.  Such  tariffs also include  charges for
terminaling  and storage of product at the Pipeline's  terminals.  Pipelines are
generally  the  lowest  cost  method for  intermediate  and  long-haul  overland
transportation of refined petroleum products.

         Each shipper  transporting  product on a pipeline is required to supply
KPOP with a notice of shipment  indicating sources of products and destinations.
All shipments are tested or receive refinery certifications to ensure compliance
with KPOP's specifications.  Shippers are generally invoiced by KPOP immediately
upon the product entering one of the Pipelines.


         The  following  table  shows the number of tanks  owned by KPOP at each
terminal  location at December  31,  2000,  the storage  capacity in barrels and
truck capacity of each terminal location.

      Location of                  Number                Tankage        Truck
       Terminals                  of Tanks              Capacity     Capacity(a)
---------------------------       --------             ----------   ------------
Colorado:
      Dupont                         18                  692,000         6
      Fountain                       13                  366,000         5
Iowa:
      LeMars                          9                  103,000         2
      Milford(b)                     11                  172,000         2
      Rock Rapids                    12                  366,000         2
Kansas:
      Concordia(c)                    7                   79,000         2
      Hutchinson                      9                  162,000         1
Nebraska:
      Columbus(d)                    12                  191,000         2
      Geneva                         39                  678,000         8
      Norfolk                        16                  187,000         4
      North Platte                   22                  198,000         5
      Osceola                         8                   79,000         2
North Dakota:
      Jamestown                      13                  188,000         2
South Dakota:
      Aberdeen                       12                  181,000         2
      Mitchell                        8                   72,000         2
      Rapid City                     13                  256,000         3
      Sioux Falls                     9                  394,000         2
      Wolsey                         21                  149,000         4
      Yankton                        25                  246,000         4
Wyoming:
      Cheyenne                       15                  345,000         2
                                 ------              -----------
Totals                              292                5,104,000
                                 ======              ===========

(a)  Number of trucks that may be  simultaneously  loaded.

(b)  This  terminal  is situated  on land  leased  through  August 7, 2007 at an
     annual  rental of  $2,400.  KPOP has the right to renew the lease  upon its
     expiration  for an  additional  term of 20 years at the same annual  rental
     rate.

(c)  This terminal is situated on land leased  through the year 2060 for a total
     rental of $2,000.

(d)  Also loads rail tank cars.

         The East Pipeline also has intermediate  storage facilities  consisting
of 12 storage  tanks at El Dorado,  Kansas  and 10 storage  tanks at  McPherson,
Kansas, with aggregate capacities of approximately  472,000 and 534,000 barrels,
respectively.  During 2000,  approximately  50.4% and 91.5% of the deliveries of
the East Pipeline and the West Pipeline,  respectively,  were made through their
terminals,  and the  remainder of the  respective  deliveries of such lines were
made to other pipelines and customer owned storage tanks.

         Storage of product at terminals  pending  delivery is considered by the
Partnership  to be an  integral  part of the  product  delivery  service  of the
Pipelines. Shippers generally store refined petroleum products for less than one
week. Ancillary services,  including injection of shipper-furnished  and generic
additives, are available at each terminal.

          Demand for and Sources of Refined Petroleum Products

         The  Partnership's  pipeline  business depends in large part on (i) the
level of demand for refined  petroleum  products  in the  markets  served by the
Pipelines and (ii) the ability and willingness of refiners and marketers  having
access  to the  Pipelines  to  supply  such  demand by  deliveries  through  the
Pipelines.

         Most of the  refined  petroleum  products  delivered  through  the East
Pipeline  are  ultimately   used  as  fuel  for  railroads  or  in  agricultural
operations,  including fuel for farm equipment,  irrigation systems, trucks used
for transporting crops and crop drying facilities.  Demand for refined petroleum
products for  agricultural  use, and the relative mix of products  required,  is
affected by weather  conditions in the markets served by the East Pipeline.  The
agricultural  sector is also  affected by government  agricultural  policies and
crop prices.  Although periods of drought suppress  agricultural demand for some
refined petroleum products,  particularly those used for fueling farm equipment,
the demand for fuel for irrigation systems often increases during such times.

         While  there is some  agricultural  demand  for the  refined  petroleum
products  delivered  through the West  Pipeline,  as well as  military  jet fuel
volumes, most of the demand is centered in the Denver and Colorado Springs area.
Because demand on the West Pipeline is  significantly  weighted toward urban and
suburban  areas,  the product mix on the West Pipeline  includes a substantially
higher percentage of gasoline than the product mix on the East Pipeline.

         The Pipelines are also dependent upon adequate  levels of production of
refined petroleum products by refineries connected to the Pipelines, directly or
through  connecting  pipelines.  The  refineries  are, in turn,  dependent  upon
adequate  supplies of suitable  grades of crude oil.  The  refineries  connected
directly to the East Pipeline  obtain crude oil from  producing  fields  located
primarily in Kansas,  Oklahoma  and Texas,  and, to a much lesser  extent,  from
other domestic or foreign sources. In addition,  refineries in Kansas,  Oklahoma
and Texas are also connected to the East Pipeline through other pipelines. These
refineries  obtain  their  supplies of crude oil from a variety of sources.  The
refineries  connected  directly to the West  Pipeline  are located in Casper and
Cheyenne,  Wyoming  and Denver,  Colorado.  Refineries  in Billings  and Laurel,
Montana are  connected  to the West  Pipeline  through  other  pipelines.  These
refineries  obtain their  supplies of crude oil  primarily  from Rocky  Mountain
sources.  If operations at any one refinery were  discontinued,  the Partnership
believes  (assuming  unchanged demand for refined petroleum  products in markets
served by the Pipelines) that the effects thereof would be short-term in nature,
and the Partnership's  business would not be materially  adversely affected over
the long term because such  discontinued  production  could be replaced by other
refineries or by other sources.

         The majority of the refined petroleum product  transported  through the
East Pipeline in 2000 was produced at three refineries  located at McPherson and
El Dorado, Kansas and Ponca City, Oklahoma, and operated by Cooperative Refining
Association ("CRA"),  Frontier Refining and Conoco, Inc.  respectively.  The CRA
and Frontier  Refining  refineries are connected  directly to the East Pipeline.
The McPherson,  Kansas refinery  operated by CRA accounted for approximately 27%
of the total amount of product  shipped over the East Pipeline in 2000. The East
Pipeline  also  has  direct  access  by  third  party  pipelines  to four  other
refineries in Kansas,  Oklahoma and Texas and to Gulf Coast supplies of products
through connecting pipelines that receive products from pipelines originating on
the  Gulf  Coast.  Five  connecting  pipelines  can  deliver  propane  from  gas
processing plants in Texas, New Mexico, Oklahoma and Kansas to the East Pipeline
for shipment.

         The majority of the refined petroleum products  transported through the
West Pipeline is produced at the Frontier Refinery located at Cheyenne, Wyoming,
the Ultramar Diamond Shamrock and Conoco Refineries located at Denver, Colorado,
and Sinclair's Little America Refinery located at Casper,  Wyoming, all of which
are connected  directly to the West Pipeline.  The West Pipeline also has access
to three Billings, Montana, area refineries through a connecting pipeline.

          Principal Customers

         KPOP had a total of  approximately  52 shippers in 2000.  The principal
shippers include four integrated oil companies,  three refining  companies,  two
large farm cooperatives and one railroad.  Transportation  revenues attributable
to the top 10 shippers of the Pipelines  were $48.7  million,  $42.7 million and
$48.3 million,  which  accounted for 69%, 63% and 76% of total revenues  shipped
for each of the years 2000, 1999 and 1998, respectively.

         Competition and Business Considerations

         The East  Pipeline's  major  competitor  is an  independent,  regulated
common  carrier   pipeline  system  owned  by  The  Williams   Companies,   Inc.
("Williams")  that operates  approximately 100 miles east of and parallel to the
East Pipeline. The Williams system is a substantially more extensive system than
the East Pipeline.  Furthermore,  Williams and its  affiliates  have capital and
financial   resources  that  are   substantially   greater  than  those  of  the
Partnership.  Competition  with  Williams is based  primarily on  transportation
charges,  quality of  customer  service  and  proximity  to end users,  although
refined product pricing at either the origin or terminal point on a pipeline may
outweigh  transportation  costs.  Fifteen  of the East  Pipeline's  16  delivery
terminals are located within 2 to 145 miles of, and in direct  competition  with
Williams' terminals.

         The West Pipeline competes with the truck loading racks of the Cheyenne
and Denver refineries and the Denver terminals of the Chase Terminal Company and
Phillips  Petroleum  Company.  Ultramar Diamond Shamrock terminals in Denver and
Colorado  Springs,  connected to a Ultramar Diamond Shamrock pipeline from their
Texas Panhandle  Refinery,  are major  competitors to the West Pipeline's Denver
and Fountain Terminals, respectively.

         Because pipelines are generally the lowest cost method for intermediate
and  long-haul  movement of refined  petroleum  products,  the  Pipelines'  more
significant  competitors are common carrier and proprietary  pipelines owned and
operated by major  integrated  and large  independent  oil  companies  and other
companies in the areas where the Pipelines deliver products. Competition between
common carrier pipelines is based primarily on transportation  charges,  quality
of customer  service and proximity to end users.  The Partnership  believes high
capital costs, tariff regulation,  environmental  considerations and problems in
acquiring  rights-of-way  make it unlikely that other competing pipeline systems
comparable in size and scope to the Pipelines  will be built in the near future,
provided the Pipelines have available capacity to satisfy demand and its tariffs
remain at reasonable levels.

         The costs associated with transporting products from a loading terminal
to end  users  limit  the  geographic  size of the  market  that  can be  served
economically  by any  terminal.  Transportation  to end users  from the  loading
terminals of the Partnership is conducted  principally by trucking operations of
unrelated third parties.  Trucks may  competitively  deliver products in some of
the areas served by the Pipelines.  However,  trucking costs render that mode of
transportation  not  competitive  for  longer  hauls  or  larger  volumes.   The
Partnership does not believe that trucks are, or will be, effective  competition
to its long-haul volumes over the long term.


Liquids Terminaling

         Introduction

         The Partnership's  Support Terminal Services operation ("ST") is one of
the largest  independent  petroleum  products and specialty liquids  terminaling
companies  in the United  States.  For the year ended  December  31,  2000,  the
Partnership's  terminaling  business  accounted  for  approximately  55%  of the
Partnership's  revenues.  As of  December  31,  2000,  and  excluding  the Shore
acquisition  described in the next  paragraph,  ST operated 35  facilities in 19
states  and  the  District  of  Columbia,  with  a  total  storage  capacity  of
approximately 25.0 million barrels.  In addition,  in February 1999, ST made its
first significant international acquisition,  with the purchase of six terminals
located in the United  Kingdom,  having a total  capacity of  approximately  5.4
million  barrels.  In September 2000, ST acquired a 1.6 million barrel petroleum
terminal in Paulsboro,  New Jersey.  ST and its predecessors have a long history
in the terminaling  business and handle a wide variety of liquids from petroleum
products to specialty chemicals to edible liquids.

         On January 3, 2001, the Partnership  completed the acquisition of Shore
Terminals LLC. Shore Terminals owns seven terminals,  four in California  (three
in the San  Francisco  Bay area and one in Los  Angeles) and one each in Tacoma,
Washington,  Portland, Oregon and Reno, Nevada, with a total storage capacity of
7.8 million barrels.  All of the terminals  handle petroleum  products and, with
the exception of the Nevada terminal, have deep water access. The purchase price
was   approximately   $107,000,000  in  cash  and  1,975,090  units  of  limited
partnership in the Partnership. The acquisition, which will become a part of the
ST Services  terminaling  operations,  will significantly  increase ST Services'
presence on the West Coast.

         ST's terminal  facilities  provide storage on a fee basis for petroleum
products,  specialty  chemicals and other  liquids.  ST's five largest  domestic
terminal  facilities are located in Piney Point,  Maryland;  Linden,  New Jersey
(50% owned  joint  venture);  Jacksonville,  Florida;  Texas City,  Texas;  and,
Paulsboro,  New Jersey.  These facilities  accounted for approximately  38.0% of
ST's revenues and 49.1% of its tankage capacity in 2000 (excluding the Paulsboro
facility,  which was acquired by ST in September 2000). Upon their  acquisition,
the Shore  terminals at Crockett and Martinez,  California  became the third and
fourth largest ST terminals.

         Description of Largest Domestic Terminal Facilities

         Piney Point,  Maryland.  The largest terminal  currently owned by ST is
located on  approximately  400 acres on the  Potomac  River.  The  facility  was
acquired as part of the  purchase of the liquids  terminaling  assets of Steuart
Petroleum  Company and certain of its  affiliates  (collectively  "Steuart")  in
December 1995. The Piney Point terminal has approximately 5.4 million barrels of
storage  capacity  in 28  tanks  and is  the  closest  deep  water  facility  to
Washington,  D.C. This terminal competes with other large petroleum terminals in
the East Coast  water-borne  market  extending  from New York Harbor to Norfolk,
Virginia.  The terminal currently stores petroleum products consisting primarily
of fuel oils and  asphalt.  The  terminal  has a dock  with a 36-foot  draft for
tankers  and four  berths  for  barges.  It also has truck  loading  facilities,
product  blending  capabilities  and is connected to a pipeline  which  supplies
residual fuel oil to two power generating stations.

         Linden,  New Jersey.  In October  1998, ST entered into a joint venture
relationship  with Northville  Industries Corp.  ("Northville") to acquire a 50%
ownership interest in and the management of the terminal facility at Linden, New
Jersey that was previously owned by Northville. The 44 acre facility provides ST
with deep-water terminaling capabilities at New York Harbor and primarily stores
petroleum products, including gasoline, jet fuel and fuel oils. The facility has
a total capacity of  approximately  3.9 million barrels in 22 tanks, can receive
products  via ship,  barge and pipeline  and  delivers  product by ship,  barge,
pipeline  and truck.  The terminal has two docks (and leases a third) with draft
limits of 35 and 24 feet, respectively.

         Jacksonville, Florida. The Jacksonville terminal, also acquired as part
of the Steuart  transaction in 1995, is located on approximately 86 acres on the
St.  John's River and consists of a main  terminal and two annexes with combined
storage capacity of approximately  2.1 million barrels in 30 tanks. The terminal
is currently used to store petroleum products including gasoline, No. 2 oil, No.
6 oil,  diesel and  kerosene.  This  terminal  has a tanker berth with a 38-foot
draft  and  four  barge  berths  and also  offers  truck  and  rail car  loading
facilities and facilities to blend residual fuels for ship bunkering.

         Texas City,  Texas.  The Texas City facility is situated on 39 acres of
land  leased  from the  Texas  City  Terminal  Railway  Company  ("TCTRC")  with
long-term  renewal  options.  Located  on  Galveston  Bay near the  mouth of the
Houston Ship Channel,  approximately  sixteen  miles from open water,  the Texas
City terminal  consists of 124 tanks with a total  capacity of  approximately  2
million  barrels.  The  eastern  end of the Texas City site is adjacent to three
deep-water  docking  facilities,  which  are also  owned  by  TCTRC.  The  three
deep-water  docks include two 36-foot draft docks and a 40-foot draft dock.  The
docking  facilities can  accommodate any ship or barge capable of navigating the
40-foot  draft of the Houston Ship Channel.  ST is charged  dockage and wharfage
fees on a per vessel and per unit basis, respectively, by TCTRC, which it passes
on to its customers.

         The Texas City facility is designed to  accommodate  a diverse  product
mix,  including  specialty  chemicals,  such as  petrochemicals  and  has  tanks
equipped for the specific storage needs of the various products handled;  piping
and  pumping  equipment  for  moving  the  product  between  the  tanks  and the
transportation modes; and, an extensive  infrastructure of support equipment. ST
receives and delivers the majority of the  specialty  chemicals  that it handles
via ship or barge at Texas City. ST also receives and delivers  liquids via rail
tank cars and transport trucks and has direct pipeline connections to refineries
in Texas City.

         Paulsboro, New Jersey. The Paulsboro terminal was acquired from GATX in
September of 2000. The facility has 18 tanks with a combined storage capacity of
approximately  1.6 million barrels on the east bank of the Delaware river across
from  Philadelphia,  Pennsylvania.  The terminal has one ship dock and two barge
berths,  is  connected  to Colonial  pipeline  and has a truck  loading rack for
receipt and delivery of petroleum products.

         ST's facilities have been designed with engineered  structural measures
to minimize the  possibility  of the  occurrence  and the level of damage in the
event of a spill or fire. All loading areas,  tanks, pipes and pumping areas are
"contained" to collect any spillage and insure that only properly  treated water
is discharged from the site.

         Other  Terminal  Sites.  In  addition  to  the  five  major  facilities
described above, ST now has 37 other terminal  facilities located throughout the
United States and six facilities in the United Kingdom.  The Paulsboro  facility
was acquired  during 2000 and the seven Shore  terminals in January 2001. The 30
facilities  (excluding the seven Shore  terminals  acquired in January 2001, but
including the Paulsboro terminal) represented  approximately 50.9% of ST's total
tankage capacity and approximately 60.5% of its total revenue for 2000. With the
exception  of the  facilities  in  Columbus,  Georgia,  which  handles  aviation
gasoline and specialty  chemicals;  Winona,  Minnesota,  which handles  nitrogen
fertilizer  solutions;  Savannah,  Georgia,  which handles chemicals and caustic
solutions, as well as petroleum products;  Vancouver,  Washington, which handles
chemicals and bulk fertilizer;  Eastham,  United Kingdom which handles chemicals
and animal fats; and Runcorn,  United  Kingdom,  which handles  molten  sulphur,
these facilities  primarily store petroleum products for a variety of customers.
Overall, these facilities provide ST locations which are diverse geographically,
in products handled and in customers served.


         The following table outlines ST's terminal locations, capacities, tanks
and primary products handled:
<TABLE>
<CAPTION>

                                     Tankage          No. of               Primary Products
         Facility                   Capacity          Tanks                     Handled
 -------------------------------  -------------     ----------       ------------------------------
<S>                                 <C>                <C>           <C>
 Major U.S. Terminals:
 Piney Point, MD                    5,403,000            28          Petroleum
 Linden, NJ(a)                      3,884,000            22          Petroleum
 Crockett, CA(d)                    3,048,000            24          Petroleum
 Martinez, CA(d)                    2,783,000            16          Petroleum
 Jacksonville, FL                   2,066,000            30          Petroleum

 Other U.S. Terminals:
 Montgomery, AL(b)                    162,000             7          Petroleum, Jet Fuel
 Moundville, AL(b)                    310,000             6          Jet Fuel
 Tuscon, AZ(a)                        181,000             7          Petroleum
 Los Angeles, CA(d)                   597,000            20          Petroleum
 Richmond, CA(d)                      617,000            25          Petroleum
 Stockton, CA                         706,000            32          Petroleum
 M Street, DC                         133,000             3          Petroleum
 Homestead, FL(b)                      72,000             2          Jet Fuel
 Augusta, GA                          110,000             8          Petroleum
 Bremen, GA                           180,000             8          Petroleum, Jet Fuel
 Brunswick, GA                        302,000             3          Petroleum, Pulp Liquor
 Columbus, GA                         180,000            25          Petroleum, Chemicals
 Macon, GA(b)                         307,000            10          Petroleum, Jet Fuel
 Savannah, GA                         861,000            19          Petroleum, Chemicals
 Blue Island, IL                      752,000            19          Petroleum
 Chillicothe, IL(a)                   270,000             6          Petroleum
 Peru, IL                             221,000             8          Petroleum, Fertilizer
 Indianapolis, IN                     410,000            18          Petroleum
 Westwego, LA                         858,000            54          Molasses, Fertilizer, Caustic
 Salina, KS(c)                         98,000            10          Petroleum
 Andrews AFB Pipeline, MD(b)           72,000             3          Jet Fuel
 Baltimore, MD                        821,000            49          Chemicals, Asphalt, Jet Fuel
 Salisbury, MD                        177,000            14          Petroleum
 Winona, MN                           229,000             7          Fertilizer
 Reno, NV(d)                          107,000             7          Petroleum
 Paulsboro, NJ                      1,580,000            18          Petroleum
 Alamogordo, NM(b)                    120,000             5          Jet Fuel
 Drumright, OK                        315,000             4          Petroleum, Jet Fuel
 Portland, OR(d)                      343,000            11          Petroleum
 Philadelphia, PA                   1,044,000            12          Petroleum
 San Antonio, TX                      207,000             4          Jet Fuel
 Texas City, TX                     2,002,000           124          Chemicals and Petrochemicals
 Dumfries, VA                         554,000            16          Petroleum, Asphalt
 Virginia Beach, VA(b)                 40,000             2          Jet Fuel
 Tacoma, WA(d)                        367,000            15          Petroleum
 Vancouver, WA                         94,000            31          Chemicals, Fertilizer
 Milwaukee, WI                        308,000             7          Petroleum

 Foreign Terminals:
 Grays, England                     1,945,000            53          Petroleum
 Eastham, England                   2,185,000           162          Chemicals, Animal Fats
 Runcorn, England                     146,000             4          Molten sulphur
 Glasgow, Scotland                    344,000            16          Petroleum
 Leith, Scotland                      459,000            34          Petroleum, Chemicals
 Belfast, Northern Ireland            315,000            38          Petroleum
                                 --------------     ----------
                                   38,285,000          1,046
                                 ==============     ==========
</TABLE>
(a)  The terminal is 50% owned by ST.

(b)  Facility  also  includes  pipelines  to  U.S.   government   military  base
     locations.

(c)  Transferred  to Kaneb  Pipe  Line  Operating  Partnership,  L.P.  effective
     January 1, 2001.

(d)  Acquired in the Shore acquisition on January 3, 2001.


         Customers

         The  storage  and  transport  of jet fuel for the  U.S.  Department  of
Defense is an important part of ST's business. Eleven of ST's terminal sites are
involved in the  terminaling  or  transport  (via  pipeline) of jet fuel for the
Department of Defense and six of the eleven  locations have been utilized solely
by the U.S. Government.  Two of these locations are presently without government
business. Of the eleven locations, five include pipelines which deliver jet fuel
directly to nearby military bases,  while another location  supplies Andrews Air
Force Base,  Maryland and consists of a barge  receiving  dock, and an 11.3 mile
pipeline,  with three 24,000 barrel  double-bottomed tanks and an administration
building located on the base.

          Competition and Business Considerations

         In addition to the terminals owned by independent  terminal  operators,
such as ST, many major  energy and chemical  companies  own  extensive  terminal
storage facilities.  Although such terminals often have the same capabilities as
terminals  owned  by  independent  operators,  they  generally  do  not  provide
terminaling  services to third  parties.  In many  instances,  major  energy and
chemical  companies  that  own  storage  and  terminaling  facilities  are  also
significant  customers  of  independent  terminal  operators,  such as ST.  Such
companies  typically  have  strong  demand for  terminals  owned by  independent
operators when independent terminals have more cost effective locations near key
transportation  links,  such as  deep-water  ports.  Major  energy and  chemical
companies  also need  independent  terminal  storage  when their  owned  storage
facilities are inadequate, either because of size constraints, the nature of the
stored material or specialized handling requirements.

         Independent  terminal  owners  generally  compete  on the  basis of the
location and  versatility of terminals,  service and price. A favorably  located
terminal will have access to various cost effective transportation modes both to
and  from  the  terminal.   Possible  transportation  modes  include  waterways,
railroads,  roadways  and  pipelines.  Terminals  located near  deep-water  port
facilities are referred to as "deep-water  terminals" and terminals without such
facilities are referred to as "inland terminals";  though some inland facilities
are served by barges on navigable rivers.

         Terminal  versatility is a function of the operator's  ability to offer
handling for diverse  products with complex handling  requirements.  The service
function typically  provided by the terminal  includes,  among other things, the
safe  storage  of the  product  at  specified  temperature,  moisture  and other
conditions,  as well as receipt at and delivery from the terminal,  all of which
must be in compliance  with  applicable  environmental  regulations.  A terminal
operator's  ability  to obtain  attractive  pricing  is often  dependent  on the
quality,  versatility  and reputation of the  facilities  owned by the operator.
Although many products  require modest terminal  modification,  operators with a
greater  diversity of terminals with versatile  storage  capabilities  typically
require less modification prior to usage,  ultimately making the storage cost to
the customer more attractive.

         Several   companies   offering  liquid   terminaling   facilities  have
significantly  more  capacity  than ST.  However,  much of ST's  tankage  can be
described as "niche" facilities that are equipped to properly handle "specialty"
liquids or provide  facilities or services where management  believes they enjoy
an advantage over competitors. Most of the larger operators have facilities used
primarily for petroleum  related products.  As a result,  many of ST's terminals
compete against other large petroleum products terminals,  rather than specialty
liquids  facilities.  Such specialty or "niche"  tankage is less abundant in the
U.S.  and  "specialty"  liquids  typically  command  higher  terminal  fees than
lower-price bulk terminaling for petroleum products.


Capital Expenditures

         Capital  expenditures by the Pipelines,  excluding  acquisitions,  were
$3.4  million,   $3.6  million  and  $5.0  million  for  2000,  1999  and  1998,
respectively.  During these periods,  adequate capacity existed on the Pipelines
to accommodate volume growth and the expenditures required for environmental and
safety improvements were not material in amount. Capital expenditures, excluding
acquisitions,  by ST were $6.1 million, $11.0 million and $4.4 million for 2000,
1999 and 1998, respectively.

         Capital  expenditures of the Partnership during 2001 are expected to be
approximately  $12 million to $15  million.  See  "Management's  Discussion  and
Analysis of  Financial  Condition  and  Results of  Operations  - Liquidity  and
Capital  Resources."  Additional  expansion-related  capital  expenditures  will
depend on future  opportunities  to expand  the  Partnership's  operations.  KPL
intends to finance  future  expansion  capital  expenditures  primarily  through
Partnership borrowings.  Such future expenditures,  however, will depend on many
factors beyond the Partnership's control, including, without limitation,  demand
for refined  petroleum  products and terminaling  services in the  Partnership's
market  areas,  local,  state  and  Federal   governmental   regulations,   fuel
conservation  efforts and the availability of financing on acceptable  terms. No
assurance  can be given  that  required  capital  expenditures  will not  exceed
anticipated  amounts during the year or thereafter or that the Partnership  will
have the ability to finance such expenditures through borrowings or choose to do
so.


Regulation

         Interstate   Regulation.   The  interstate   common  carrier   pipeline
operations of the  Partnership  are subject to rate regulation by FERC under the
Interstate  Commerce  Act. The  Interstate  Commerce Act  provides,  among other
things,  that to be lawful the rates of common carrier petroleum  pipelines must
be "just and  reasonable" and not unduly  discriminatory.  New and changed rates
must be filed with the FERC,  which may investigate  their lawfulness on protest
or its own motion.  The FERC may suspend the  effectiveness of such rates for up
to  seven  months.   If  the  suspension   expires  before   completion  of  the
investigation,  the rates go into  effect,  but the  pipeline can be required to
refund to shippers,  with interest,  any  difference  between the level the FERC
determines to be lawful and the filed rates under investigation. Rates that have
become final and  effective  may be  challenged  by complaint to FERC filed by a
shipper or on the FERC's own  initiative.  Reparations  may be  recovered by the
party filing the complaint for the two-year  period prior to the  complaint,  if
FERC finds the rate to be unlawful.

         The FERC allows for a rate of return for petroleum  products  pipelines
determined  by adding (i) the  product of a rate of return  equal to the nominal
cost of debt  multiplied  by the  portion  of the rate base that is deemed to be
financed  with debt and (ii) the  product of a rate of return  equal to the real
(i.e., inflation-free) cost of equity multiplied by the portion of the rate base
that is deemed to be financed with equity.  The appropriate rate of return for a
petroleum  pipeline is determined on a case-by-case  basis,  taking into account
cost of capital, competitive factors and business and financial risks associated
with pipeline operations.

         Under  Title  XVIII of the  Energy  Policy  Act of 1992 (the "EP Act"),
rates  that were in effect  on  October  24,  1991  that were not  subject  to a
protest,  investigation or complaint are deemed to be just and reasonable.  Such
rates,  commonly  referred to as  grandfathered  rates, are subject to challenge
only for limited reasons.  Any relief granted pursuant to such challenges may be
prospective only. Because the Partnership's rates that were in effect on October
24,  1991,  were not subject to  investigation  and protest at that time,  those
rates  could be deemed to be just and  reasonable  pursuant  to the EP Act.  The
Partnership's  current  rates became final and  effective in July 2000,  and the
Partnership   believes  that  its  currently  effective  tariffs  are  just  and
reasonable  and would  withstand  challenge  under the  FERC's  cost-based  rate
standards.  Because of the complexity of rate making, however, the lawfulness of
any rate is never assured.

         On October  22,  1993,  the FERC issued  Order No. 561 which  adopted a
simplified  rate making  methodology for future oil pipeline rate changes in the
form of  indexation.  Indexation,  which is also known as price cap  regulation,
establishes  ceiling  prices on oil  pipeline  rates based on  application  of a
broad-based  measure of inflation in the general economy to existing rates. Rate
increases up to the ceiling level are to be discretionary for the pipeline, and,
for  such  rate  increases,  there  will be no need to file  cost-of-service  or
supporting data.  Moreover,  so long as the ceiling is not exceeded,  a pipeline
may make a limitless  number of rate change  filings.  This  indexing  mechanism
calculates a ceiling rate. Rate decreases are required if the indexing mechanism
operates to reduce the  ceiling  rate below a  pipeline's  existing  rates.  The
pipeline may increase its rates to this calculated ceiling rate without filing a
formal cost based justification and with limited risk of shipper protests.

         The  indexation  method  is to serve  as the  principal  basis  for the
establishment  of oil  pipeline  rate changes in the future.  However,  the FERC
determined  that a pipeline  may  utilize any one of the  following  alternative
methodologies to indexing: (i) a cost-of-service  methodology may be utilized by
a pipeline to justify a change in a rate if a pipeline can demonstrate  that its
increased  costs  are  prudently  incurred  and  that  there  is  a  substantial
divergence  between such increased  costs and the rate that would be produced by
application  of the  index;  and  (ii) a  pipeline  may base  its  rates  upon a
"light-handed"  market-based  form of regulation if it is able to  demonstrate a
lack of significant market power in the relevant markets.

         On September 15, 1997, the Partnership  filed an Application for Market
Power  Determination  with the FERC seeking market based rates for approximately
half of its markets. In May 1998, the FERC granted the Partnership's application
and approximately half of the Pipelines markets  subsequently  became subject to
market force regulation.

         In the  FERC's  Lakehead  decision  issued  June  15,  1995,  the  FERC
partially  disallowed  Lakehead's  inclusion  of  income  taxes  in its  cost of
service.  Specifically,  the FERC held that  Lakehead was entitled to receive an
income tax  allowance  with  respect  to income  attributable  to its  corporate
partners,  but  was  not  entitled  to  receive  such an  allowance  for  income
attributable to the partnership interests held by individuals. Lakehead's motion
for rehearing  was denied by the FERC and Lakehead  appealed the decision to the
U.S.  Court of Appeals.  Subsequently,  the case was settled by Lakehead and the
appeal was  withdrawn.  In another  FERC  proceeding  involving a different  oil
pipeline  limited  partnership,  various  shippers  challenged  such  pipeline's
inclusion of an income tax  allowance  in its cost of service.  The FERC decided
this case on the same basis as its  holding in the  Lakehead  case.  If the FERC
were to partially or completely disallow the income tax allowance in the cost of
service  of the  Pipelines  on the basis set forth in the  Lakehead  order,  KPL
believes that the  Partnership's  ability to pay distributions to the holders of
the Units would not be impaired;  however, in view of the uncertainties involved
in this issue, there can be no assurance in this regard.

         Intrastate  Regulation.  The intrastate operations of the East Pipeline
in Kansas are subject to regulation by the Kansas  Corporation  Commission,  and
the  intrastate  operations  of the West  Pipeline in  Colorado  and Wyoming are
subject to regulation by the Colorado Public Utility  Commission and the Wyoming
Public Service  Commission,  respectively.  Like the FERC, the state  regulatory
authorities  require  that  shippers be notified of proposed  intrastate  tariff
increases and have an  opportunity  to protest such  increases.  KPOP also files
with such state  authorities  copies of interstate tariff changes filed with the
FERC.  In  addition  to  challenges  to new or  proposed  rates,  challenges  to
intrastate  rates that have already become  effective are permitted by complaint
of an interested person or by independent  action of the appropriate  regulatory
authority.


Environmental Matters

         General.  The  operations  of the  Partnership  are subject to Federal,
state  and  local  laws  and  regulations  relating  to  the  protection  of the
environment in the United States and,  since  February  1999, the  environmental
laws and  regulations of the United Kingdom in regard to the terminals  acquired
from GATX Terminals,  Limited,  in the United Kingdom.  Although the Partnership
believes  that  its  operations  are  in  general   compliance  with  applicable
environmental  regulations,  risks of  substantial  costs  and  liabilities  are
inherent in pipeline and terminal operations, and there can be no assurance that
significant  costs and  liabilities  will not be  incurred  by the  Partnership.
Moreover,  it is possible that other  developments,  such as increasingly strict
environmental laws, regulations and enforcement policies thereunder,  and claims
for  damages  to  property  or  persons  resulting  from the  operations  of the
Partnership, past and present, could result in substantial costs and liabilities
to the Partnership.

         See "Item 3 - Legal  Proceedings" for information  concerning a lawsuit
against certain subsidiaries of the Partnership  involving jet fuel leaks from a
pipeline.

         Water.  The Oil  Pollution  Act  ("OPA") was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972 and other statutes
as they  pertain to  prevention  and  response to oil spills.  The OPA  subjects
owners of facilities to strict,  joint and potentially  unlimited  liability for
removal costs and certain other  consequences of an oil spill,  where such spill
is into navigable waters, along shorelines or in the exclusive economic zone. In
the event of an oil spill into such  waters,  substantial  liabilities  could be
imposed  upon  the  Partnership.  Regulations  concerning  the  environment  are
continually  being  developed  and  revised in ways that may  impose  additional
regulatory burdens on the Partnership.

         Contamination  resulting  from spills or releases of refined  petroleum
products are not unusual within the petroleum  pipeline and liquids  terminaling
industries.   The  East  Pipeline  and  ST  Services  have  experienced  limited
groundwater  contamination at various terminal and pipeline sites resulting from
various causes including activities of previous owners. Remediation projects are
underway or under construction using various remediation  techniques.  The costs
to remediate  contamination  at several ST terminal  locations is being borne by
the former owners under indemnification  agreements.  Although no assurances can
be made, the Partnership  believes that the aggregate cost of these  remediation
efforts will not be material.

         Groundwater  remediation  efforts  are  ongoing at all four of the West
Pipeline's  terminals and at a Wyoming pump station.  Regulatory  officials have
been consulted in the  development of remediation  plans. In connection with the
purchase of the West  Pipeline,  KPOP agreed to implement  remediation  plans at
these specific sites over the succeeding five years following the acquisition in
return for the payment by the seller,  Wyco Pipe Line Company,  of $1,312,000 to
KPOP to cover the discounted  estimated future costs of these remediations.  The
Partnership has accrued $2.1 million for these future remediation expenses.

         In May 1998, the West Pipeline, at a point between Dupont, Colorado and
Fountain,  Colorado  ruptured,  and  approximately  1,000 barrels of product was
released.  Containment  and  remedial  action was  immediately  commenced.  Upon
investigation,  it appeared  that the failure of the  pipeline was due to damage
caused by third party  excavations.  The Partnership has made claim to the third
party as well as to its insurance  carriers.  The Partnership has entered into a
Compliance  Order on  Consent  with the State of  Colorado  with  respect to the
remediation.  As of December 31, 2000, the Partnership has incurred $1.2 million
of costs in connection  with this incident.  Future costs are not anticipated to
be significant.  The Partnership  has recovered  substantially  all of its costs
from its insurance carrier.

         On April 7, 2000,  a fuel oil  pipeline  in  Maryland  owned by Potomac
Electric  Power  Company  ("PEPCO")  ruptured.  The  pipeline  was operated by a
partnership of which ST is general  partner.  PEPCO has reported  that,  through
December  2000,  it incurred  approximately  $66  million in clean-up  costs and
expects to incur total  cleanup  costs of $70 million to $75 million.  Since May
2000,  ST has  participated  provisionally  in a minority  share of the  cleanup
expense,  which has been funded by ST's insurance  carriers.  KPP cannot predict
the amount,  if any, that  ultimately  may be determined to be ST's share of the
remediation  expense,  but it  believes  that such  amount  will be  covered  by
insurance and will not materially affect KPP's financial condition.

         As a result of the rupture,  purported class actions have been filed in
federal and state court in Maryland by property  and/or business owners alleging
damages in  unspecified  amounts  against PEPCO and ST under  various  theories,
including  the federal Oil Pollution  Act. The court has ordered a  consolidated
complaint to be filed in this action.  ST's insurance  carriers have assumed the
defense of these actions.  While KPP cannot  predict the amount,  if any, of any
liability  it may have in these  suits,  it believes  that such  amounts will be
covered by insurance  and that these  actions  will not have a material  adverse
effect on its financial condition.

         PEPCO and ST have  agreed  with the State of  Maryland  to pay costs of
assessing natural resource damages under the federal Oil Pollution Act, but they
cannot  predict  at this time the amount of any  damages  that may be claimed by
Maryland.  KPL  believes  that both the  assessment  costs and such  damages are
covered by insurance and will not materially affect KPP's financial condition.

         The U.S.  Department of Transportation  has issued a Notice of Proposed
Violation to PEPCO and ST alleging  violations  over  several  years of pipeline
safety  regulations  and  proposing a civil  penalty of  $674,000.  ST and PEPCO
intend to contest the  allegations of violations and the proposed  penalty.  The
ultimate  amount of any penalty  attributable to ST cannot be determined at this
time, but KPL believes that this matter will not have a material effect on KPP's
financial condition.

         The  EPA  has  also  promulgated   regulations  that  may  require  the
Partnership  to apply for permits to discharge  storm water runoff.  Storm water
discharge  permits  also  may  be  required  in  certain  states  in  which  the
Partnership  operates.  Where such requirements are applicable,  the Partnership
has applied for such  permits  and,  after the  permits  are  received,  will be
required to sample storm water  effluent  before  releasing it. The  Partnership
believes  that  effluent  limitations  could be met,  if  necessary,  with minor
modifications  to existing  facilities and operations.  Although no assurance in
this regard can be given,  the  Partnership  believes  that the changes will not
have a material effect on the  Partnership's  financial  condition or results of
operations.

         Aboveground  Storage  Tank  Acts.  A number of the  states in which the
Partnership  operates  in the United  States  have  passed  statutes  regulating
aboveground  tanks  containing  liquid  substances.  Generally,  these  statutes
require  that such  tanks  include  secondary  containment  systems  or that the
operators take certain  alternative  precautions to ensure that no contamination
results from any leaks or spills from the tanks. Although there is not currently
a Federal statute  regulating  these above ground tanks,  there is a possibility
that such a law will be passed in the United  States  within the next few years.
The Partnership is in substantial  compliance with all above ground storage tank
laws in the states  with such laws.  Although  no  assurance  can be given,  the
Partnership believes that the future implementation of above ground storage tank
laws by either  additional  states or by the Federal  government will not have a
material adverse effect on the Partnership's  financial  condition or results of
operations.

         Air  Emissions.  The operations of the  Partnership  are subject to the
Federal Clean Air Act and comparable  state and local statutes.  The Partnership
believes that the  operations of the Pipelines and Terminals are in  substantial
compliance with such statutes in all states in which they operate.

         Amendments to the Federal Clean Air Act enacted in 1990 require or will
require most industrial  operations in the United States to incur future capital
expenditures in order to meet the air emission control  standards that have been
and are to be  developed  and  implemented  by the EPA and  state  environmental
agencies.  Pursuant  to  these  Clean  Air  Act  Amendments,  those  Partnership
facilities that emit volatile organic  compounds  ("VOC") or nitrogen oxides are
subject to  increasingly  stringent  regulations,  including  requirements  that
certain sources install maximum or reasonably  available control technology.  In
addition,  the 1999 Federal  Clean Air Act  Amendments  include a new  operating
permit  for major  sources  ("Title V  Permits"),  which  applies to some of the
Partnership's facilities. Additionally, new dockside loading facilities owned or
operated  by the  Partnership  in the United  States  will be subject to the New
Source  Performance  Standards that were proposed in May 1994. These regulations
require control of VOC emissions from the loading and unloading of tank vessels.

         Although the  Partnership is in substantial  compliance with applicable
air  pollution  laws,  in  anticipation  of the  implementation  of stricter air
control  regulations,  the Partnership is taking actions to substantially reduce
its air  emissions.  The  Partnership  plans to install bottom loading and vapor
recovery  equipment on the loading  racks at selected  terminal  sites along the
East Pipeline that do not already have such emissions control  equipment.  These
modifications  will  substantially  reduce the total air emissions  from each of
these  facilities.  Having begun in 1993, this project is being phased in over a
period of years.

         Solid Waste. The Partnership  generates  non-hazardous solid waste that
is subject to the requirements of the Federal Resource Conservation and Recovery
Act ("RCRA") and  comparable  state  statutes in the United  States.  The EPA is
considering  the  adoption  of stricter  disposal  standards  for  non-hazardous
wastes.  RCRA also  governs the disposal of hazardous  wastes.  At present,  the
Partnership  is not  required to comply with a  substantial  portion of the RCRA
requirements because the Partnership's operations generate minimal quantities of
hazardous wastes. However, it is anticipated that additional wastes, which could
include wastes  currently  generated  during  pipeline  operations,  will in the
future be designated as "hazardous wastes". Hazardous wastes are subject to more
rigorous and costly disposal  requirements than are non-hazardous  wastes.  Such
changes in the  regulations  may result in additional  capital  expenditures  or
operating expenses by the Partnership.

         At the terminal sites at which  groundwater  contamination  is present,
there is also  limited  soil  contamination  as a result  of the  aforementioned
spills.  The  Partnership  is under no  present  requirements  to  remove  these
contaminated  soils, but the Partnership may be required to do so in the future.
Soil contamination also may be present at other Partnership  facilities at which
spills or releases have occurred.  Under certain circumstances,  the Partnership
may be required to clean up such contaminated soils. Although these costs should
not have a material adverse effect on the Partnership, no assurance can be given
in this regard.

         Superfund. The Comprehensive  Environmental Response,  Compensation and
Liability Act ("CERCLA" or  "Superfund")  imposes  liability,  without regard to
fault or the  legality of the original  act, on certain  classes of persons that
contributed  to the release of a  "hazardous  substance"  into the  environment.
These  persons  include  the owner or operator  of the site and  companies  that
disposed or arranged for the disposal of the hazardous  substances  found at the
site.  CERCLA also authorizes the EPA and, in some  instances,  third parties to
act in response to threats to the public health or the  environment  and to seek
to recover from the responsible  classes of persons the costs they incur. In the
course of its ordinary  operations,  the Partnership may generate waste that may
fall within CERCLA's definition of a "hazardous substance".  The Partnership may
be  responsible  under CERCLA for all or part of the costs  required to clean up
sites at which such wastes have been disposed.

         Environmental   Impact   Statement.    The   United   States   National
Environmental  Policy Act of 1969 (the "NEPA") applies to certain  extensions or
additions  to  a  pipeline  system.  Under  NEPA,  if  any  project  that  would
significantly  affect  the  quality  of the  environment  requires  a permit  or
approval from any United States Federal agency, a detailed  environmental impact
statement  must be  prepared.  The effect of the NEPA may be to delay or prevent
construction of new facilities or to alter their  location,  design or method of
construction.

         Indemnification.  KPL has agreed to indemnify the  Partnership  against
liabilities for damage to the environment  resulting from operations of the East
Pipeline prior to October 3, 1989. Such  indemnification  does not extend to any
liabilities  that arise  after such date to the extent such  liabilities  result
from change in environmental laws or regulations.  Under such indemnity,  KPL is
presently  liable for the remediation of  contamination at certain East Pipeline
sites. In addition,  both KPOP and ST was wholly or partially  indemnified under
certain  acquisition  contracts  for  some  environmental  costs.  Most  of such
contracts contain time and amount limitations on the indemnities.  To the extent
that  environmental  liabilities  exceed the amount of such indemnity,  KPOP has
affirmatively assumed the excess environmental liabilities.


Safety Regulation

         The Pipelines are subject to regulation by the United States Department
of Transportation  (the "DOT") under the Hazardous Liquid Pipeline Safety Act of
1979  ("HLPSA")  relating to the design,  installation,  testing,  construction,
operation,  replacement and management of their pipeline  facilities.  The HLPSA
covers petroleum and petroleum  products  pipelines and requires any entity that
owns or operates pipeline  facilities to comply with such safety regulations and
to permit  access to and  copying of records  and to make  certain  reports  and
provide information as required by the Secretary to Transportation.  The Federal
Pipeline  Safety Act of 1992  amended the HLPSA to include  requirements  of the
future use of internal inspection devices. The Partnership does not believe that
it will be required to make any substantial capital  expenditures to comply with
the requirements of HLPSA as so amended.

         On November 3, 2000, the DOT issued new regulations intended by the DOT
to assess the integrity of hazardous liquid pipeline segments that, in the event
of a leak or failure,  could  adversely  affect highly  populated  areas,  areas
unusually   sensitive  to  environmental   impact  and  commercially   navigable
waterways.  Under the regulations,  an operator is required, among other things,
to conduct baseline  integrity  assessment tests (such as internal  inspections)
within seven  years,  conduct  future  integrity  tests at  typically  five year
intervals  and  develop  and follow a written  risk-based  integrity  management
program  covering the designated high  consequence  areas.  KPL does not believe
that any increased  costs of compliance with these  regulations  will materially
affect the Partnership's results of operations.

         The  Partnership  is subject to the  requirements  of the United States
Federal  Occupational  Safety and  Health  Act  ("OSHA")  and  comparable  state
statutes  that regulate the  protection of the health and safety of workers.  In
addition,   the  OSHA  hazard  communication   standard  requires  that  certain
information  be  maintained  about  hazardous  materials  used  or  produced  in
operations and that this  information be provided to employees,  state and local
authorities  and  citizens.  The  Partnership  believes  that  it is in  general
compliance with OSHA requirements,  including general industry standards, record
keeping requirements and monitoring of occupational exposure to benzene.

         The OSHA hazard communication standard, the EPA community right-to-know
regulations   under  Title  III  of  the   Federal   Superfund   Amendment   and
Reauthorization  Act, and comparable  state statutes  require the Partnership to
organize  information  about the  hazardous  materials  used in its  operations.
Certain parts of this information must be reported to employees, state and local
governmental  authorities,  and local  citizens  upon request.  In general,  the
Partnership  expects to  increase  its  expenditures  during the next  decade to
comply  with higher  industry  and  regulatory  safety  standards  such as those
described above. Such expenditures cannot be accurately  estimated at this time,
although  they  are  not  expected  to have a  material  adverse  impact  on the
Partnership.


Employees

         The  Partnership  has no employees.  The business of the Partnership is
conducted by the General  Partner,  KPL,  which at December  31, 2000,  employed
approximately 600 persons. Approximately 114 of the persons employed by KPL were
subject to representation by unions for collective bargaining purposes; however,
only 86 persons  employed at 5 of KPL's  terminal unit locations were subject to
collective  bargaining  or  similar  contracts  at that  date.  Union  contracts
regarding  conditions  of  employment  for 18, 6, 16, 30 and 16 employees are in
effect  through June 30, 2001,  September 1, 2001,  February 28, 2002,  June 29,
2002,  and November 1, 2003,  respectively.  All such  contracts  are subject to
automatic  renewal for  successive one year periods unless either party provides
written notice in a timely manner to terminate or modify such agreement.


Item 2.    Properties

         The  properties   owned  or  utilized  by  the   Partnership   and  its
subsidiaries  are  generally  described  in  Item 1 of this  Report.  Additional
information  concerning the obligations of the Partnership and its  subsidiaries
for lease and rental commitments is presented under the caption "Commitments and
Contingencies" in Note 6 to the Partnership's consolidated financial statements.
Such descriptions and information are hereby incorporated by reference into this
Item 2.

         The properties used in the operations of the Pipelines are owned by the
Partnership,  through  its  subsidiary  entities,  except for KPL's  operational
headquarters,  located  in  Wichita,  Kansas,  which is held  under a lease that
expires in 2004. The majority of ST's facilities are owned, while the remainder,
including  most  of its  terminal  facilities  located  in  port  areas  and its
operational  headquarters,  located in Dallas, Texas, are held pursuant to lease
agreements having various expiration dates, rental rates and other terms.


Item 3.    Legal Proceedings

         Certain  subsidiaries  of the  Partnership  were sued in a Texas  state
court in 1997 by Grace Energy Corporation  ("Grace"),  the entity from which the
Partnership  acquired ST Services in 1993.  The lawsuit  involves  environmental
response and  remediation  allegedly  resulting from jet fuel leaks in the early
1970's from a pipeline.  The pipeline,  which  connected a former Grace terminal
with Otis Air Force  Base in  Massachusetts,  was  abandoned  in 1976,  when the
connecting terminal was sold to an unrelated entity.

         Grace  alleged  that  subsidiaries  of  the  Partnership  acquired  the
abandoned  pipeline,  as part of the  acquisition  of ST Services  in 1993,  and
assumed  responsibility  for  environmental  damages allegedly caused by the jet
fuel leaks.  Grace sought a ruling that these  subsidiaries  are responsible for
all present and future  remediation  expenses for these leaks and that Grace has
no obligation to indemnify these subsidiaries for these expenses.

         In the lawsuit,  Grace also sought indemnification for expenses that it
has  incurred  since  1996  of  approximately  $3.5  million  for  response  and
remediation  required by the State of Massachusetts and for additional  expenses
that  it  expects  to  incur  in the  future.  The  consistent  position  of the
Partnership's  subsidiaries is that they did not acquire the abandoned  pipeline
as  part  of  the  1993  ST  transaction,  and  therefore  did  not  assume  any
responsibility  for the environmental  damage nor any liability to Grace for the
pipeline.

         At the end of the trial on May 19,  2000,  the jury  returned a verdict
including  findings that Grace had breached a provision of the 1993  acquisition
agreement and that the pipeline was  abandoned  prior to 1978. On July 17, 2000,
the Judge  entered  final  judgment  in the case,  which is now on appeal to the
Dallas Court of Appeals,  that Grace take nothing from the  subsidiaries  on its
claims,  including  claims  for  future  expenses.  Although  the  Partnership's
subsidiaries  have not incurred any expenses in connection with the remediation,
the court also ruled, in effect,  that the subsidiaries would not be entitled to
an indemnification  from Grace if any such expenses were incurred in the future.
However,  the Judge let stand a prior summary  judgment ruling that the pipeline
was an asset of the Partnership acquired as part of the 1993 ST transaction. The
Judge also awarded attorney fees to Grace.

         While the judgment  means that the  subsidiaries  have no obligation to
reimburse Grace for the approximately $3.5 million it has incurred,  as required
by the State of  Massachusetts,  the  Partnership's  subsidiaries  have filed an
appeal of the judgment  finding that the Otis Pipeline was  transferred  to them
and the award of attorney fees.

         The  Otis  Air  Force  Base  is a part  of the  Massachusetts  Military
Reservation  ("MMR"),  which has been declared a Superfund  Site pursuant to the
Comprehensive  Environmental  Response,  Compensation and Liability Act. The MMR
Site contains nine groundwater  contamination plumes, two of which are allegedly
associated  with the  pipeline,  and  various  other waste  management  areas of
concern,  such as  landfills.  The United  States  Department of Defense and the
United States Coast Guard, pursuant to a Federal Facilities Agreement, have been
responding to the Government  remediation  demand for most of the  contamination
problems at the MMR Site.  Grace and others have also  received and responded to
formal  inquiries  from the United  States  Government  in  connection  with the
environmental   damages  allegedly  resulting  from  the  jet  fuel  leaks.  The
Partnership's  subsidiaries have voluntarily responded to an invitation from the
Government to provide information  indicating that they do not own the pipeline.
In connection with a court-ordered mediation between Grace and the subsidiaries,
the Government  advised the parties in April 1999 that it has identified the two
spill areas that it believes to be related to the  pipeline  that is the subject
of the Grace suit.  The  Government  advised the parties that it believes it has
incurred costs of approximately $34 million,  and expects in the future to incur
costs of approximately  $55 million,  for remediation of one of the spill areas.
This amount was not intended to be a final accounting of costs or to include all
categories of costs.  The Government  also advised the parties that it could not
at that time  allocate  its costs  attributable  to the second  spill area.  The
Partnership   believes  that  the  ultimate  cost  of  the  remediation,   while
substantial, will be considerably less than the Government has indicated.

         The Government has made no claims against the  Partnership or any other
person on account of this  matter.  The  Partnership  believes  that if any such
claims  were made,  its  subsidiaries  would have  substantial  defenses to such
claims.  Under  Massachusetts  law, the party  responsible  for remediation of a
facility is the last owner before the  abandonment,  which was a Grace  company.
The Partnership  does not believe that either the Grace litigation or any claims
that may be made by the  Government  will  adversely  affect its ability to make
cash  distributions to its  unitholders,  but there can be no assurances in that
regard.

         The  Partnership  has  other  contingent   liabilities  resulting  from
litigation,  claims and commitments incident to the ordinary course of business.
Management  believes,  based  on  the  advice  of  counsel,  that  the  ultimate
resolution of such  contingencies  will not have a materially  adverse effect on
the financial position or results of operations of the Partnership.


Item 4.    Submission of Matters to a Vote of Security Holders

         The  Partnership  did not hold a meeting of  Unitholders  or  otherwise
submit any matter to a vote of security holders in the fourth quarter of 2000.




                                     PART II

Item 5.    Market for the Registrant's Units and Related Unitholder Matters

         The Partnership's  limited  partnership  interests ("Units") are listed
and traded on the New York Stock Exchange (the "NYSE"),  under the symbol "KPP."
At March 6, 2001, there were approximately  1,100  Unitholders.  Set forth below
are prices on the NYSE and cash distributions for the periods indicated for such
Units.
<TABLE>
<CAPTION>
                                                        Unit Prices                         Cash
                                                   ----------------------               Distributions
         Year                                        High           Low                    Declared
         -----------------------------             --------      --------               -------------
         <S>                                       <C>           <C>                    <C>
         1999:
                   First Quarter                   29 3/16       26 1/4                   $  .70
                   Second Quarter                  29 3/4        27 1/4                      .70
                   Third Quarter                   29 3/4        26 1/2                      .70
                   Fourth Quarter                  26 15/16      21 5/16                     .70

         2000:
                   First Quarter                   28 1/4        24 3/16                     .70
                   Second Quarter                  27 1/8        23 3/8                      .70
                   Third Quarter                   29 15/16      24 11/16                    .70
                   Fourth Quarter                  31 3/4        26 1/16                     .70

         2001:
                   First quarter                   34.09         29.88                       .70
                      (through March 6, 2001)
</TABLE>

         Under  the  terms  of its  financing  agreements,  the  Partnership  is
prohibited  from  declaring  or paying  any  distribution  if a  default  exists
thereunder.


Item 6.    SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA

         The  following  table  sets  forth,  for the  periods  and at the dates
indicated,  selected historical financial and operating data for Kaneb Pipe Line
Partners,  L.P. and subsidiaries (the "Partnership").  The data in the table (in
thousands,  except per unit  amounts) is derived from the  historical  financial
statements  of the  Partnership  and  should  be read in  conjunction  with  the
Partnership's  audited financial statements.  See also "Management's  Discussion
and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>

                                                                 Year Ended December 31,
                                         --------------------------------------------------------------------
                                             2000          1999           1998          1997           1996
                                         ----------    ----------      ----------    ----------    ----------
<S>                                      <C>           <C>             <C>           <C>           <C>
Income Statement Data:
Revenues............................     $  156,232    $  158,028      $ 125,812     $  121,156    $  117,554
                                         ----------    ----------      ---------     ----------    ----------

Operating costs.....................        69,653         69,148         52,200         50,183        49,925
Depreciation and amortization.......        16,253         15,043         12,148         11,711        10,981
General and administrative..........        11,881          9,424          6,261          5,793         5,259
                                         ---------     ----------      ---------     ----------    ----------

    Total costs and expenses........        97,787         93,615         70,609         67,687        66,165
                                         ---------     ----------      ---------     ----------    ----------

Operating income....................        58,445         64,413         55,203         53,469        51,389
Interest and other income...........         1,442            408            626            562           776
Interest expense....................       (12,283)       (13,390)       (11,304)       (11,332)      (11,033)
Minority interest in net income.....          (467)          (499)          (441)          (420)         (403)
                                         ---------     ----------      ---------     -----------   -----------
Income before income taxes..........        47,137         50,932         44,084         42,279        40,729
Income tax provision................          (943)        (1,496)          (418)          (718)         (822)
                                         ---------     ----------      ---------     -----------   -----------

Net income..........................     $   46,194    $   49,436      $  43,666     $   41,561    $   39,907
                                         ==========    ==========      =========     ==========    ==========

Allocation of net income per
    Unit (a)........................     $     2.43    $     2.81      $    2.67     $     2.55    $     2.46
                                         ==========    ==========      =========     ==========    ==========

Cash Distributions declared per
    Unit (a)........................     $     2.80    $     2.80      $    2.60     $     2.50    $     2.30
                                         ==========    ==========      =========     ==========    ==========

Balance Sheet Data (at period end):
Property and equipment, net.........     $ 321,355     $  316,883      $ 268,626     $  247,132    $  249,733
Total assets........................       375,063        365,953        308,432        269,032       274,765
Long-term debt......................       166,900        155,987        153,000        132,118       139,453
Partners' capital...................       160,767        168,288        105,388        104,196       103,340

</TABLE>

(a)  Prior to the third quarter of 1998,  the  Partnership  had three classes of
     partnership  interests  designated as Senior Preference  Units,  Preference
     Units  and  Common  Units,   respectively.   Pursuant  to  the  Partnership
     Agreement, on August 14, 1998, each such class of units were converted into
     a single class designated as "Units",  effective July 1, 1998.  Allocations
     of net income and cash distributions declared were equal for all classes of
     units for all periods presented.


<PAGE>
Item 7   Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         This  discussion  should be read in conjunction  with the  consolidated
financial statements of Kaneb Pipe Line Partners, L.P. and notes thereto and the
summary  historical  financial  and operating  data  included  elsewhere in this
report.


General

         In September  1989,  Kaneb Pipe Line Company  ("KPL"),  a  wholly-owned
subsidiary of Kaneb Services, Inc. ("Kaneb"),  formed the Partnership to own and
operate  its refined  petroleum  products  pipeline  business.  The  Partnership
operates  through KPOP, a limited  partnership in which the Partnership  holds a
99% interest as limited partner and KPL owns a 1% interest as general partner in
both the  Partnership  and KPOP. The  Partnership is engaged  through  operating
subsidiaries  in the refined  petroleum  products  pipeline  business and, since
1993, terminaling and storage of petroleum products and specialty liquids.

          The  Partnership's   pipeline  business  consists   primarily  of  the
transportation  through  the East  Pipeline  and the West  Pipeline,  as  common
carriers, of refined petroleum products. The East Pipeline and the West Pipeline
are  collectively  referred  to as  the  "Pipelines."  The  Pipelines  primarily
transport  gasoline,  diesel  oil,  fuel  oil  and  propane.  The  products  are
transported from refineries connected to the Pipeline, directly or through other
pipelines,  to  agricultural  users,  railroads and  wholesale  customers in the
states in which the  Pipelines  are located  and in  portions  of other  states.
Substantially  all  of  the  Pipelines'  operations  constitute  common  carrier
operations  that are  subject  to  Federal  or  state  tariff  regulations.  The
Partnership  has not  engaged,  nor does it currently  intend to engage,  in the
merchant function of buying and selling refined petroleum products.

         The  Partnership's  business  of  terminaling  petroleum  products  and
specialty liquids is conducted under the name ST Services ("ST").

         On January 3, 2001, the Partnership, through a wholly-owned subsidiary,
acquired  Shore  Terminals  LLC ("Shore") for $107 million in cash and 1,975,090
KPP Units.  Financing  for the cash portion of the  purchase  price was supplied
under a new $275 million  unsecured  revolving credit agreement with a bank. See
"Liquidity and Capital Resources".  Shore owns seven terminals,  located in four
states,  with a  total  tankage  capacity  of 7.8  million  barrels.  All of the
terminals  handle  petroleum  products and, with the exception of one, have deep
water access.

         On February 1, 1999, the Partnership, through two wholly-owned indirect
subsidiaries,  acquired six  terminals in the United  Kingdom from GATX Terminal
Limited for (pound)22.6 million  (approximately  $37.2 million) plus transaction
costs and the  assumption of certain  liabilities.  The  acquisition  of the six
locations,  which have an aggregate tankage capacity of 5.4 million barrels, was
initially  financed by term loans from a bank.  $13.3  million of the term loans
were  repaid in July 1999 with the  proceeds  from a public unit  offering.  See
"Liquidity and Capital  Resources".  Three of the terminals,  handling petroleum
products,  chemicals and molten sulfur,  respectively,  operate in England.  The
remaining three  facilities,  two in Scotland and one in Northern  Ireland,  are
primarily petroleum terminals.  All six terminals are served by deepwater marine
docks.

         On  October  30,  1998,   the   Partnership,   through  a  wholly-owned
subsidiary,   entered  into  acquisition  and  joint  venture   agreements  with
Northville  Industries  Corp.  ("Northville")  to acquire  and manage the former
Northville  terminal located in Linden,  New Jersey.  Under the agreements,  the
Partnership  acquired a 50% interest in the  newly-formed ST Linden Terminal LLC
for $20.5 million plus transaction costs. The petroleum storage facility,  which
has capacity of 3.9 million  barrels in 22 tanks,  was funded by bank  financing
which was repaid using  proceeds from a public unit  offering in July 1999.  See
"Liquidity and Capital Resources".

         The Partnership is the third largest  independent  liquids  terminaling
company in the United  States.  Following  the Shore  acquisition  on January 3,
2001, ST operated 42  facilities in 24 states,  the District of Columbia and six
facilities  in  the  United  Kingdom  with  an  aggregate  tankage  capacity  of
approximately 38.3 million barrels.

<PAGE>
Pipeline Operations

                                                      Year Ended December 31,
                                                 ------------------------------
                                                   2000       1999       1998
                                                 --------   --------   --------
                                                         (in thousands)

Revenues.....................................    $ 70,685   $ 67,607   $ 63,421
Operating costs .............................      25,223     23,579     22,057
Depreciation and amortization ...............       5,180      5,090      4,619
General and administrative ..................       4,069      3,102      3,115
                                                 --------   --------   --------
Operating income.............................    $ 36,213   $ 35,836   $ 33,630
                                                 ========   ========   ========

         Pipelines  revenues are based on volumes shipped and the distances over
which such  volumes  are  transported.  For the year ended  December  31,  2000,
revenues  increased by $3.1 million due primarily to an increase in  terminaling
charges.  For the year ended  December  31,  1999,  revenues  increased  by $4.2
million due to overall increases in total volumes shipped, primarily on the East
Pipeline.  Because tariff rates are regulated by the FERC, the Pipelines compete
primarily on the basis of quality of service,  including  delivering products at
convenient  locations  on a timely  basis to meet  the  needs of its  customers.
Barrel miles totaled 17.8  billion,  18.4 billion and 17.0 billion for the years
ended December 31, 2000, 1999 and 1998, respectively.

          Operating  costs,  which  include fuel and power costs,  materials and
supplies,  maintenance and repair costs, salaries,  wages and employee benefits,
and property and other taxes, increased by $1.6 million in 2000 and $1.5 million
in 1999,  respectively.  The  increase  in both  years was due to  increases  in
materials and supplies  costs,  including  additives,  that are volume  related.
General and  administrative  costs,  which include  managerial,  accounting  and
administrative  personnel costs,  office rental expense,  legal and professional
costs and other  non-operating costs increased by $1.0 million in 2000, compared
to 1999,  when the  Partnership  booked a one-time  benefit  resulting  from the
favorable elimination of a contingency.


Terminaling Operations

                                                      Year Ended December 31,
                                                 ------------------------------
                                                   2000       1999       1998
                                                 --------   --------   --------
                                                         (in thousands)

Revenues.....................................    $ 85,547   $ 90,421   $ 62,391
Operating costs..............................      44,430     45,569     30,143
Depreciation and amortization................      11,073      9,953      7,529
General and administrative...................       7,812      6,322      3,146
                                                 --------   --------   --------
Operating income...........................      $ 22,232   $ 28,577   $ 21,573
                                                 ========   ========   ========

         For the year  ended  December  31,  2000,  revenues  decreased  by $4.9
million,  compared to 1999. Revenue increases  resulting from the United Kingdom
and other 1999 terminal  acquisitions were more than offset by decreases in tank
utilization  due  to  unfavorable  domestic  market  conditions  resulting  from
declines in forward  product  pricing.  For the year ended  December  31,  1999,
revenues increased by $28.0 million, due to terminal  acquisitions and increased
utilization of existing terminals due to favorable market conditions,  partially
offset by a decrease in the overall price  realized for storage.  Average annual
tankage utilized for the years ended December 31, 2000, 1999 and 1998 aggregated
21.0  million   barrels,   22.6  million  barrels  and  15.2  million   barrels,
respectively. The 2000 decrease in average annual tankage utilized resulted from
the unfavorable domestic market conditions.  The 1999 increase resulted from the
acquisitions  and  increased  storage  at the  Partnership's  largest  petroleum
storage facility.  Average revenues per barrel of tankage utilized for the years
ended December 31, 2000, 1999 and 1998 was $4.12, $4.00 and $4.11, respectively.
The  increase in 2000  average  revenues  per barrel of tankage  utilized,  when
compared  to 1999,  was due to the storage of a larger  proportionate  volume of
specialty  chemicals,  which are  historically  at higher per barrel  rates than
petroleum  products.  The  unusually  low 1999  average  revenues  per barrel of
tankage  utilized  was due to the 1999  temporary  increase  in  storage  at the
Partnership's largest petroleum storage facility.

         Operating  costs  decreased by $1.1 million in 2000,  when  compared to
1999, due to lower costs  resulting from the overall  decline in volumes stored.
The 1999  increase of $15.4  million in operating  costs was due to the terminal
acquisitions  and  increases  in tank  utilization.  General and  administrative
expense  increased  by $1.5  million in 2000 and by $3.2  million  in 1999.  The
increase  in 2000 is due  entirely to  extraordinarily  high  litigation  costs.
Approximately  one-half  of the  increase  in  1999  was  due  to  the  terminal
acquisitions  with  the  remaining  portion  of  the  1999  increase  due to the
extraordinarily  high  litigation  costs.  In  2000,  KPP sold  land  and  other
Terminaling  business  assets for  approximately  $2.0 million in net  proceeds,
recognizing a gain on disposition of assets of $1.1 million.


         Total tankage  capacity  (38.3 million  barrels,  including 7.8 million
barrels  acquired in the Shore  acquisition on January 3, 2001) has been, and is
expected to remain,  adequate to meet existing  customer  storage  requirements.
Customers   consider  factors  such  as  location,   access  to  cost  effective
transportation  and quality of service,  in addition to pricing,  when selecting
terminal storage.



Liquidity and Capital Resources

         Cash provided by operating activities was $62.0 million,  $63.6 million
and $58.8 million for the years 2000, 1999 and 1998, respectively.  The decrease
in  cash  provided  by  operations  in  2000  is a  result  of the  decrease  in
terminaling  revenues and operating  income due to unfavorable  domestic  market
conditions.  The  increase in 1999  resulted  from  increases  in  revenues  and
operating  income  in  the  terminaling   operations   resulting  from  terminal
acquisitions and  improvements in pipeline  operations from increases in volumes
shipped.

         Capital expenditures,  excluding expansion capital  expenditures,  were
$9.5  million,  $14.6  million  and  $9.4  million  for  2000,  1999  and  1998,
respectively.   During  all  periods,  adequate  pipeline  capacity  existed  to
accommodate volume growth,  and the expenditures  required for environmental and
safety  improvements  were  not,  and  are not  expected  in the  future  to be,
significant.  Environmental damages caused by sudden and accidental  occurrences
are included under the Partnership's  insurance coverages (subject to deductible
and  limits).  The  Partnership  anticipates  that routine  maintenance  capital
expenditures  (excluding  acquisitions) will total  approximately $12 million to
$15 million in 2001.  Such  future  expenditures,  however,  will depend on many
factors beyond the Partnership's control, including, without limitation,  demand
for refined  petroleum  products and terminaling  services in the  Partnership's
market  areas,  local,  state  and  Federal   governmental   regulations,   fuel
conservation  efforts and the availability of financing on acceptable  terms. No
assurance  can be given  that  required  capital  expenditures  will not  exceed
anticipated  amounts during the year or thereafter or that the Partnership  will
have the ability to finance such expenditures through borrowings or choose to do
so.

         The  Partnership   expects  to  fund  future  cash   distributions  and
maintenance  capital  expenditures  with  existing  cash  and  cash  flows  from
operating  activities.  Expansionary  capital  expenditures  are  expected to be
funded through additional  Partnership bank borrowings and/or future public unit
or debt offerings.

         The Partnership makes quarterly  distributions of 100% of its Available
Cash, as defined in the Partnership Agreement, to holders of limited partnership
units ("Unitholders") and KPL. Available Cash consists generally of all the cash
receipts less all cash  disbursements  and reserves.  Distributions of $2.80 per
unit  were  declared  to  Unitholders  in 2000 and 1999 and  $2.60  per unit was
declared in 1998.

         In December 2000, the Partnership  entered into a credit agreement with
a group of banks that  provides for a $275 million  unsecured  revolving  credit
facility  through  December  2003.  No  amounts  were drawn on the  facility  at
December 31, 2000. The credit facility bears interest at variable  rates,  has a
variable commitment fee on unutilized amounts and contains certain financial and
operational covenants. Proceeds from the facility were used to repay in full the
Partnership's  $128 million of mortgage notes and $15 million  outstanding under
its $25 million  revolving  credit  facility in January 2001. An additional $107
million was used to finance the cash portion of the Shore acquisition. Under the
provisions  of the  mortgage  notes,  the  Partnership  incurred a $6.3  million
prepayment penalty,  which will be recognized as an extraordinary expense in the
first  quarter of 2001.  At January 3,  2001,  $257.5  million  was drawn on the
facility, at an interest rate of 6.31%, which is due in December of 2003.

         In  January   1999,   the   Partnership,   through   two   wholly-owned
subsidiaries,  entered into a credit agreement with a bank that provided for the
issuance of $39.2  million of term loans in connection  with the United  Kingdom
terminal  acquisition and $5.0 million for general Partnership  purposes.  $18.3
million of the term loans were  repaid in July 1999 with the  proceeds  from the
public unit offering.  The remaining portion ($23.9 million),  with a fixed rate
of 7.14%, is due in January 2002. The term loans under the credit agreement,  as
amended, are unsecured and are pari passu with the $275 million revolving credit
facility.  The  term  loans  also  contain  certain  financial  and  operational
covenants.

         In July 1999, the Partnership  issued 2.25 million limited  partnership
units in a public offering at $30.75 per unit,  generating  approximately  $65.6
million in net proceeds. A portion of the proceeds was used to repay in full the
Partnership's  $15.0 million promissory note, the $25.0 million revolving credit
facility and $18.3 million in term loans  (including $13.3 million in term loans
resulting from the United Kingdom terminal acquisition).

         See also "Item 1 - Regulation", regarding the FERC's Lakehead decision.


Allocation of Net Income and Earnings

         Net income or loss is allocated  between limited partner  interests and
the general partner pro rata based on the aggregate amount of cash distributions
declared (including general partner incentive distributions). Beginning in 1997,
distributions  by the  Partnership  of Available  Cash reached the Second Target
Distribution,  as defined  in the  Partnership  Agreement,  which  entitled  the
general partner to receive certain  incentive  distributions at different levels
of cash distributions. Earnings per Unit shown on the consolidated statements of
income are calculated by dividing the limited  partners'  interest in net income
by the weighted average number of Units outstanding. If the allocation of income
had been made as if all income had been  distributed in cash,  earnings per Unit
would have been $2.49,  $2.81 and $2.66 for the years ended  December  31, 2000,
1999 and 1998, respectively.


Recent Accounting Pronouncements

         The Partnership has assessed the reporting and disclosure  requirements
of SFAS No. 133, "Accounting and Derivative Instruments and Hedging Activities",
which  establishes the accounting and reporting  standards for such  activities.
Under SFAS No. 133,  companies must recognize all derivative  instruments on its
balance  sheet at fair  value.  Changes in the value of  derivative  instruments
which are  considered  hedges,  will either be offset against the change in fair
value of the hedged item through earnings,  or recognized in other comprehensive
income until the hedged item is recognized in earnings,  depending on the nature
of the hedge. The Partnership will adopt SFAS No. 133, as amended,  in the first
quarter of 2001.  Currently,  the  Partnership  is not a party to any derivative
contracts,  and does not anticipate that adoption will have a material effect on
the Partnership's results of operations or financial position.


Item 7(a).    Quantitative and Qualitative Disclosure About Market Risk

         The  principal  market risks  (i.e.,  the risk of loss arising from the
adverse  changes in market rates and prices) to which the Partnership is exposed
are interest  rates on the  Partnership's  debt and investment  portfolios.  The
Partnership  centrally  manages its debt and investment  portfolios  considering
investment  opportunities  and  risks  and  overall  financing  strategies.  The
Partnership's  investment  portfolio consists of cash equivalents;  accordingly,
the carrying amounts  approximate fair value. The Partnership's  investments are
not material to its financial  position or performance.  Assuming  variable rate
debt of $257.5  million at January 3, 2001,  a one percent  increase in interest
rates would increase net interest expense by approximately $2.6 million.


Item 8.    Financial Statements and Supplementary Data

         The financial  statements  and  supplementary  data of the  Partnership
begin on page F-1 of this report.  Such  information is hereby  incorporated  by
reference into this Item 8.


Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure.

           None.


                                    PART III

Item 10.   Directors and Executive Officers of the Registrant

          The  Partnership is a limited  partnership  and has no directors.  The
Partnership  is managed by KPL as general  partner.  Set forth  below is certain
information  concerning  the  directors  and  executive  officers  of  KPL.  All
directors of KPL are elected  annually by Kaneb,  as its sole  stockholder.  All
officers serve at the discretion of the Board of Directors of KPL.
<TABLE>
<CAPTION>

                                           Position with                Years of Service                        % of
Name                      Age                   KPL                         With KPL             Units(m)        O/S
------------------------ ------- ---------------------------------- ------------------------- --------------- ----------
<S>                        <C>                                               <C>                    <C>           <C>
Edward D. Doherty          65    Chairman of the Board and                   11 (a)                 87,526        *
                                   Chief  Executive Officer
Leon E. Hutchens           66    President                                   41 (b)                    500        *
Jimmy L. Harrison          47    Executive Vice President                     8 (d)                   -0-         *
                                    and Controller
Ronald D. Scoggins         46    Senior Vice President                        4 (c)                  1,451        *
Howard C. Wadsworth        56    Vice President,Treasurer                     7 (e)                   -0-         *
                                   and Secretary
Sangwoo Ahn                62    Director                                    12 (f)                 34,000        *
John R. Barnes             56    Director                                    14 (g)                230,900      1.14%
Murray R. Biles            70    Director                                    47 (h)                    500        *
Frank M. Burke, Jr.        61    Director                                     4 (i)                   -0-         *
Charles R. Cox             58    Director                                     6 (j)                  8,500        *
Hans Kessler               51    Director                                     4 (k)                   -0-         *
James R. Whatley           74    Director                                    12 (l)                 27,400        *
       All Officers and Directors as a group (12 persons)                                          390,777      1.93%
*Less than one percent
</TABLE>

(a)      Mr. Doherty,  Chairman of the Board and Chief Executive  Officer of KPL
         since September 1989, is also Senior Vice President of Kaneb.
(b)      Mr. Hutchens assumed his current position in January 1994,  having been
         with KPL since January 1960. Mr. Hutchens had been Vice President since
         January 1981.  Mr.  Hutchens was Manager of Product  Movement from July
         1976 to January 1981.
(c)      Mr. Scoggins became an executive  officer of KPL in August 1997,  prior
         to which he served in senior  level  positions  for ST for more than 10
         years.
(d)      Mr. Harrison  assumed his present  position in November 1992,  prior to
         which he served in a variety of financial positions including Assistant
         Secretary and Treasurer  with ARCO Pipe Line Company for  approximately
         19 years.
(e)      Mr.  Wadsworth also serves as Vice  President,  Treasurer and Secretary
         for Kaneb. Mr. Wadsworth joined Kaneb in October 1990.
(f)      Mr.  Ahn, a director  of KPL since  July  1989,  is also a director  of
         Kaneb.  Mr. Ahn has been a general  partner of Morgan  Lewis  Githens &
         Ahn, an investment  banking firm,  since 1982 and currently serves as a
         director of PAR Technology Corporation and Quaker Fabric Corporation.
(g)      Mr. Barnes, a director of KPL, is also Chairman of the Board, President
         and Chief Executive Officer of Kaneb.
(h)      Mr.  Biles  joined KPL in November  1953 and served as  President  from
         January 1985 until his retirement at the close of 1993.
(i)      Mr. Burke,  a director of KPL since January 1997, is also a director of
         Kaneb.  Mr. Burke has been  Chairman and  Managing  General  Partner of
         Burke,  Mayborn Company,  Ltd., a private investment company,  for more
         than the past five years. Mr. Burke also currently serves as a Director
         of Avidyn, Inc. and Arch Coal, Inc.
(j)      Mr. Cox, a director of KPL since  September 1995, is also a director of
         Kaneb. Mr. Cox has been a private business consultant since retiring in
         January  1998  from  Fluor  Daniel,  Inc.,  an  international  services
         company,  where he served in senior  executive level positions during a
         29 year career with that organization.
(k)      Mr.  Kessler,  elected to the Board on  February  19,  1998,  is also a
         director of Kaneb.  Mr.  Kessler has served as  Chairman  and  Managing
         Director of KMB Kessler + Partner GmbH since 1992. He was  previously a
         Managing  Director and Vice  President  of a European  Division of Tyco
         International Ltd.
(l)      Mr.  Whatley,  a director of KPL since July 1989, is also a director of
         Kaneb and served as  Chairman of the Board of  Directors  of Kaneb from
         February 1981 until April 1989.
(m)      Partnership  Units  listed are those  beneficially  owned by the person
         indicated,  his spouse or  children  living at home and do not  include
         Units in which the person has disclaimed any beneficial interest.


Audit Committee

         Messrs.  Sangwoo Ahn, Frank M. Burke, Jr. and James R. Whatley serve as
the members of the Audit  Committee of KPL.  Such  Committee  will, on an annual
basis,  or more  frequently as such  Committee may determine to be  appropriate,
review  policies and practices of KPL and the  Partnership and deal with various
matters as to which potential conflicts of interest may arise.


Committee Interlocks and Insider Participation

         KPL's Board of Directors does not have a compensation  committee or any
other committee that performs the equivalent  functions.  During the fiscal year
ended December 31, 2000, none of KPL's officers or employees participated in the
deliberations  of  KPL's  Board  of  Directors   concerning   executive  officer
compensation.


Section 16(a) Beneficial Ownership Reporting Compliance Statement

         Section  16(a)  of the  Securities  Exchange  Act of 1934,  as  amended
("Section  16(a)") requires KPL's officers and directors,  among others, to file
reports of  ownership  and  changes of  ownership  in the  Partnership's  equity
securities  with the Securities  and Exchange  Commission and the New York Stock
Exchange.  Such persons are also required by related  regulations to furnish KPL
with copies of all Section 16(a) forms that they file.

         Based solely on its review of the copies of such forms  received by it,
KPL believes  that,  since  January 1, 2000,  its officers  and  directors  have
complied  with  all  applicable   filing   requirements   with  respect  to  the
Partnership's equity securities.


Item 11.   Executive Compensation

         The  Partnership  has  no  executive  officers,  but  is  obligated  to
reimburse KPL for  compensation  paid to KPL's executive  officers in connection
with their operation of the Partnership's business.

         The  following  table  sets  forth  information  with  respect  to  the
aggregate compensation paid or accrued by KPL during the fiscal years 2000, 1999
and 1998,  to the Chief  Executive  Officer  and each of the other  most  highly
compensated executive officers of KPL.
<TABLE>
<CAPTION>

                                                     SUMMARY COMPENSATION TABLE

                                                       Annual Compensation
             Name and Principal                  -------------------------------       All Other
               Position                 Year        Salary(a)          Bonus(b)     Compensation(c)
         ---------------------------   -----     ---------------      ----------    ---------------
         <S>                           <C>       <C>                  <C>               <C>
         Edward D. Doherty(d)          2000      $  234,392           $    -0-          $  6,787
           Chairman of the             1999         225,375                -0-             6,249
           Board and Chief             1998         216,758                -0-             6,402
           Executive Officer

         Leon E. Hutchens              2000         203,383                -0-             7,443
           President                   1999         195,550             13,600             7,336
                                       1998         188,083             10,000             7,027

         Jimmy L. Harrison             2000         128,820                -0-             2,666
           Executive Vice President    1999         123,720              6,800             3,844
                                       1998         117,000              5,000             3,120

         Ronald D. Scoggins(d)         2000         164,658(e)             -0-             6,457
           Senior Vice President       1999         159,441(e)             -0-             6,343
                                       1998         161,348(e)             -0-             6,100

</TABLE>

(a)      Amounts  for  2000,  1999  and  1998,  respectively,  include  deferred
         compensation  for  Mr.  Doherty  ($6,762,  $14,720  and  $13,692);  Mr.
         Hutchens  ($1,608,  $8,416  and  $4,869);  and Mr.  Scoggins  ($11,464,
         $11,212 and $10,600).
(b)      Amounts earned in year shown and paid the following year.
(c)      Represents KPL's  contributions  to Kaneb's Savings  Investment Plan (a
         401(k)  plan) and the  imputed  value of  Company-paid  group term life
         insurance.
(d)      The  compensation  for these  individuals  is paid by  Kaneb,  which is
         reimbursed for all or substantially all of such compensation by KPL.
(e)      Amounts for 2000, 1999 and 1998, respectively, include $24,058, $24,016
         and $31,131 in the form of  Partnership  Units  (434,  378 and 412) and
         Kaneb Services, Inc. Common Stock (1,314, 969 and 1,322).

<PAGE>
 Director's Fees

         During 2000,  each member of KPL's Board of Directors  who was not also
an  employee  of KPL or Kaneb was paid an annual  retainer of $10,000 in lieu of
all attendance fees.


Item 12.   Security Ownership of Certain Beneficial Owners and Management

         At March 6, 2001, KPL owned a combined 2% General  Partner  interest in
the  Partnership  and KPOP  and,  together  with  its  affiliates,  owned  Units
representing an aggregate limited partner interest of approximately 25%.


Item 13.   Certain Relationships and Related Transactions

         KPL  is  entitled  to  certain  reimbursements  under  the  Partnership
Agreement.  For additional  information  regarding the nature and amount of such
reimbursements,   see  Note  7  to  the  Partnership's   consolidated  financial
statements.


                                     PART IV


Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

  (a)(1) Financial Statements

         Beginning  Page  Set  forth  below  is a list of  financial  statements
         appearing in this report.

         Kaneb Pipe Line Partners, L.P. and Subsidiaries Financial Statements:
           Consolidated Statements of Income - Three Years
               Ended December 31, 2000...............................     F - 1
           Consolidated Balance Sheets - December 31, 2000 and 1999..     F - 2
           Consolidated Statements of Cash Flows - Three Years
               Ended December 31, 2000...............................     F - 3
           Consolidated Statements of Partners' Capital - Three
               Years ended December 31, 2000.........................     F - 4
         Notes to Consolidated Financial Statements..................     F - 5
         Independent Auditors' Report................................     F - 15

  (a)(2) Financial Statement Schedules

         All schedules for which provision is made in the applicable  accounting
         regulation of the Securities  and Exchange  Commission are not required
         under the related instructions or are inapplicable,  and therefore have
         been omitted.


  (a)(3) List of Exhibits

3.1      Amended and Restated  Agreement of Limited  Partnership dated September
         27, 1989, as revised July 23, 1998, filed herewith.

10.1     ST Agreement  and Plan of Merger date  December 21, 1992 by and between
         Grace Energy  Corporation,  Support Terminal Services,  Inc.,  Standard
         Transpipe Corp., and Kaneb Pipe Line Operating Partnership,  NSTS, Inc.
         and NSTI,  Inc. as amended by Amendment of STS Merger  Agreement  dated
         March 2, 1993,  filed as Exhibit 10.1 of the  exhibits to  Registrant's
         Current  Report on Form 8-K ("Form 8-K"),  dated March 16, 1993,  which
         exhibit is hereby incorporated by reference.

10.2     Agreement  for Sale and  Purchase  of  Assets  between  Wyco  Pipe Line
         Company and KPOP, dated February 19, 1995, filed as Exhibit 10.1 of the
         exhibits  to the  Registrant's  March 1995 Form 8-K,  which  exhibit is
         hereby incorporated by reference.

10.3     Asset Purchase  Agreements between and among Steuart Petroleum Company,
         SPC Terminals,  Inc., Piney Point Industries,  Inc., Steuart Investment
         Company,  Support Terminals  Operating  Partnership,  L.P. and KPOP, as
         amended, dated August 27, 1995, filed as Exhibits 10.1, 10.2, 10.3, and
         10.4 of the exhibits to  Registrant's  Current Report on Form 8-K dated
         January 3, 1996, which exhibits are hereby incorporated by reference.

10.4     Formation and Purchase  Agreement,  between and among Support  Terminal
         Operating  Partnership,  L.P.,  Northville  Industries Corp. and AFFCO,
         Corp.,   dated  October  30,  1998,   filed  as  exhibit  10.9  to  the
         Registrant's  Form 10-K for the year ended  December  31,  1998,  which
         exhibit is hereby incorporated by reference.

10.5     Agreement,  between and among,  GATX  Terminals  Limited,  ST Services,
         Ltd., ST Eastham, Ltd., GATX Termianls  Corporation,  Support Terminals
         Operating Partnership,  L.P. and Kaneb Pipe Line Partners,  L.P., dated
         January 26, 1999, filed as Exhibit 10.10 to the Registrant's  Form 10-K
         for  the  year  ended  December  31,  1998,  which  exhibit  is  hereby
         incorporated by reference.

10.6     Credit  Agreement,   between  and  among,  Kaneb  Pipe  Line  Operating
         Partnership,  L.P., ST Services, Ltd. and SunTrust Bank, Atlanta, dated
         January 27, 1999, filed as Exhibit 10.11 to the Registrant's  Form 10-K
         for  the  year  ended  December  31,  1998,  which  exhibit  is  hereby
         incorporated by reference.

10.7     Revolving Credit  Agreement,  dated as of December 28, 2000 among Kaneb
         Pipe Line Operating Partnership,  L.P., Kaneb Pipe Line Partners, L.P.,
         The Lenders  From Time To Time Party  Hereto,  and  SunTrust  Bank,  as
         Administrative Agent, filed herewith.

10.8     Securities  Purchase  Agreement  Among Shore  Terminals LLC, Kaneb Pipe
         Line  Partners,  L.P.  and  the  Sellers  Named  Therein,  dated  as of
         September 22, 2000,  Amendment No. 1 To Securities  Purchase Agreement,
         dated as of November 28, 2000 and Registration Rights Agreement,  dated
         as of January 3, 2001,  filed as  Exhibits  10.1,  10.2 and 10.3 of the
         exhibits to  Registrant's  Current  Report on Form 8-K dated January 3,
         2001, which exhibits are hereby incorporated by reference.

21       List of Subsidiaries, filed herewith.

23       Consent of KPMG LLP, filed herewith.



(b)      Reports on Form 8-K

         Current  Report on Form 8-K regarding  the decision of Kaneb  Services,
         Inc.'s  ("Kaneb   Services")  Board  of  Directors  to  distribute  its
         pipeline, terminaling and product marketing business to Kaneb Services'
         stockholders  in the form of a new  limited  liability  company,  dated
         November 29, 2000,  (Registrant  is a Delaware  limited  partnership of
         which Kaneb Pipe Line Company, a Delaware  corporation  ("KPL"), is the
         general partner. KPL is a wholly owned subsidiary of Kaneb Services).

         Current Report on Form 8-K regarding the Acquisition of Shore Terminals
         LLC,  located  in  California,  Washington,  Oregon and  Nevada,  dated
         January 3, 2001.

<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                         -----------------------------------------------
                                              2000            1999             1998
                                         -------------    -------------    -------------
<S>                                      <C>              <C>              <C>
Revenues .............................   $ 156,232,000    $ 158,028,000    $ 125,812,000
                                         -------------    -------------    -------------
Costs and expenses:
   Operating costs ...................      69,653,000       69,148,000       52,200,000
   Depreciation and amortization .....      16,253,000       15,043,000       12,148,000
   General and administrative ........      11,881,000        9,424,000        6,261,000
                                         -------------    -------------    -------------
      Total costs and expenses .......      97,787,000       93,615,000       70,609,000
                                         -------------    -------------    -------------

Operating income .....................      58,445,000       64,413,000       55,203,000

Interest and other income ............       1,442,000          408,000          626,000
Interest expense .....................     (12,283,000)     (13,390,000)     (11,304,000)
                                         -------------    -------------    -------------
Income before minority
   interest and income taxes .........      47,604,000       51,431,000       44,525,000

Minority interest in net income ......        (467,000)        (499,000)        (441,000)

Income tax provision .................        (943,000)      (1,496,000)        (418,000)
                                         -------------    -------------    -------------
Net income ...........................      46,194,000       49,436,000       43,666,000

General partner's interest
   in net income .....................      (1,639,000)      (1,640,000)        (735,000)
                                         -------------    -------------    -------------
Limited partners' interest
   in net income .....................   $  44,555,000    $  47,796,000    $  42,931,000
                                         =============    =============    =============

Allocation of net income per
   Unit as described in Note 2 .......   $        2.43    $        2.81    $        2.67
                                         =============    =============    =============

Weighted average number of Partnership
   units outstanding .................      18,310,000       16,997,500       16,060,000
                                         =============    =============    =============
</TABLE>


                 See notes to consolidated financial statements.

                                      F - 1


<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                                           December 31,
                                                 ------------------------------
                                                     2000             1999
                                                 -------------    -------------
       ASSETS
Current assets:
   Cash and cash equivalents .................   $   4,758,000    $   5,127,000
   Accounts receivable .......................      21,091,000       16,929,000
   Prepaid expenses ..........................       5,291,000        5,036,000
                                                 -------------    -------------
      Total current assets ...................      31,140,000       27,092,000
                                                 -------------    -------------
Property and equipment .......................     458,926,000      439,537,000
Less accumulated depreciation ................     137,571,000      122,654,000
                                                 -------------    -------------
      Net property and equipment .............     321,355,000      316,883,000
                                                 -------------    -------------
Investment in affiliates .....................      22,568,000       21,978,000
                                                 -------------    -------------
                                                 $ 375,063,000    $ 365,953,000
                                                 =============    =============


       LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
   Accounts payable ..........................   $   3,706,000    $   3,288,000
   Accrued expenses ..........................       7,705,000        6,350,000
   Accrued distributions payable .............      13,372,000       13,372,000
   Accrued taxes, other than income taxes ....       2,363,000        2,267,000
   Deferred terminaling fees .................       3,717,000        3,075,000
   Payable to general partner ................       1,889,000        1,411,000
                                                 -------------    -------------
      Total current liabilities ..............      32,752,000       29,763,000
                                                 -------------    -------------
Long-term debt ...............................     166,900,000      155,987,000

Other liabilities and deferred taxes .........      13,676,000       10,882,000

Minority interest ............................         968,000        1,033,000

Commitments and contingencies

Partners' capital:
   Limited partners ..........................     161,307,000      168,019,000
   General partner ...........................         981,000        1,037,000
   Accumulated other comprehensive income (loss)
    - foreign currency translation adjustment ..    (1,521,000)        (768,000)
                                                 -------------    -------------
      Total partners' capital ................     160,767,000      168,288,000
                                                 -------------    -------------
                                                 $ 375,063,000    $ 365,953,000
                                                 =============    =============



                 See notes to consolidated financial statements.

                                      F - 2

<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                           Year Ended December 31,
                                                          ---------------------------------------------------------
                                                              2000                  1999                  1998
                                                          -------------         -------------        --------------
<S>                                                       <C>                   <C>                  <C>
Operating activities:
   Net income ........................................    $  46,194,000         $  49,436,000        $   43,666,000
   Adjustments to reconcile net income to net
      cash provided by operating activities:
      Depreciation and amortization...................       16,253,000            15,043,000            12,148,000
      Minority interest in net income.................          467,000               499,000               441,000
      Equity in earnings of affiliates, net
        of distribution...............................         (154,000)           (1,072,000)                 -
      Gain on sale of assets..........................       (1,126,000)                 -                     -
      Deferred income taxes...........................          943,000             1,487,000               481,000
      Other liabilities...............................          841,000                  -                     -
      Changes in working capital components:
        Accounts receivable...........................       (4,162,000)           (3,012,000)           (2,414,000)
        Prepaid expenses..............................         (255,000)             (995,000)              (14,000)
        Accounts payable and accrued expenses.........        1,869,000             3,028,000             3,174,000
        Deferred terminaling fees.....................          642,000              (451,000)              634,000
        Payable to general partner....................          478,000              (374,000)              642,000
                                                          -------------         -------------        --------------
           Net cash provided by operating activities..       61,990,000            63,589,000            58,758,000
                                                          -------------         -------------        --------------
Investing activities:
   Capital expenditures...............................       (9,483,000)          (14,568,000)           (9,401,000)
   Acquisitions of pipelines and terminals............      (12,053,000)          (44,390,000)          (44,410,000)
   Proceeds from sale of assets.......................        1,961,000                  -                     -
   Other..............................................         (212,000)           (2,064,000)           (1,121,000)
                                                          -------------         ---------------      --------------
           Net cash used in investing activities......       (19,787,000)          (61,022,000)          (54,932,000)
                                                          --------------        --------------       ---------------

Financing activities:
   Changes in amounts due to/from
      general partner.................................             -               (5,000,000)            5,000,000
   Issuance of debt...................................       14,613,000            51,319,000            35,000,000
   Payments of debt and capital lease.................       (3,700,000)          (58,332,000)           (6,453,000)
   Distributions, including minority interest.........      (53,485,000)          (51,850,000)          (42,900,000)
   Net proceeds from issuance of KPP units............             -               65,574,000                 -
                                                          -------------         -------------        --------------
           Net cash provided by (used in) financing
               activities.............................      (42,572,000)            1,711,000            (9,353,000)
                                                          -------------         -------------        --------------
Increase (decrease) in cash and cash equivalents......         (369,000)            4,278,000            (5,527,000)
Cash and cash equivalents at beginning of period......        5,127,000               849,000             6,376,000
                                                          -------------         -------------        --------------
Cash and cash equivalents at end of period............    $   4,758,000         $   5,127,000        $      849,000
                                                          =============         =============        ==============
Supplemental information - Cash paid for interest.....    $  12,438,000         $  12,881,000        $   11,156,000
                                                          =============         =============        ==============

</TABLE>


                 See notes to consolidated financial statements.

                                      F - 3


<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

<TABLE>
<CAPTION>
                                                                            Accumulated
                                                                               Other
                                                Limited        General     Comprehensive                    Comprehensive
                                              Partners (a)     Partner     Income (Loss)     Total             Income
                                            --------------   -----------   -------------  -------------   ----------------


<S>                                         <C>              <C>           <C>            <C>             <C>
Partners' capital at January 1, 1998.....   $  103,167,000   $ 1,029,000   $       -      $ 104,196,000   $          -

  1998 income allocation.................       42,931,000       735,000           -         43,666,000        43,666,000

  Distributions declared.................      (41,756,000)     (718,000)          -        (42,474,000)             -
                                            --------------  ------------   -----------    -------------   ---------------
  Comprehensive income for the year......                                                                 $    43,666,000
                                                                                                          ===============
Partners' capital at December 31, 1998...      104,342,000     1,046,000           -        105,388,000               -

  1999 income allocation.................       47,796,000     1,640,000           -         49,436,000         49,436,000

  Distributions declared.................      (49,693,000)   (1,649,000)          -        (51,342,000)              -

  Issuance of units......................       65,574,000           -             -         65,574,000               -

  Foreign currency translation adjustment            -               -        (768,000)        (768,000)          (768,000)
                                            --------------   -----------   -----------    -------------    ---------------
  Comprehensive income for the year......                                                                  $    48,668,000
                                                                                                           ===============
Partners' capital at December 31, 1999...      168,019,000     1,037,000      (768,000)     168,288,000

  2000 income allocation.................       44,555,000     1,639,000           -         46,194,000         46,194,000

  Distributions declared.................      (51,267,000)   (1,695,000)          -        (52,962,000)              -

  Foreign currency translation adjustment            -               -        (753,000)        (753,000)          (753,000)
                                            --------------  ------------   -----------    -------------    ---------------
  Comprehensive income for the year......                                                                  $    45,441,000
                                                                                                           ===============
Partners' capital at December 31, 2000...   $  161,307,000  $    981,000   $(1,521,000)   $ 160,767,000
                                            ==============  ============   ===========    =============
Limited partnership units outstanding at
  December 31, 1998......................       16,060,000           (b)           -        16,060,000

Units issued in 1999.....................        2,250,000           -             -         2,250,000
                                            --------------   -----------   -----------   -------------
Limited partnership units outstanding at
  December 31, 1999 and 2000.............       18,310,000           (b)           -        18,310,000
                                            ==============  ============   ===========   =============
</TABLE>


(a)  Prior to the third quarter of 1998,  the  Partnership  had three classes of
     partnership interests designated Senior Preference Units,  Preference Units
     and Common Units,  respectively.  Pursuant to the Partnership Agreement, on
     August 14,  1998,  each such class of units  were  converted  into a single
     class designated "Units", effective July 1, 1998. See Note 2.

(b)  KPL owns a combined 2% interest in the Partnership as General Partner.



                 See notes to consolidated financial statements.

                                      F - 4



<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.       PARTNERSHIP ORGANIZATION

         Kaneb Pipe Line Partners,  L.P. ("KPP" or the "Partnership"),  a master
limited  partnership,  owns and operates a refined  petroleum  products pipeline
business and a petroleum  products and specialty liquids storage and terminaling
business.   The   Partnership   operates   through  Kaneb  Pipe  Line  Operating
Partnership, L.P. ("KPOP"), a limited partnership in which the Partnership holds
a  99%  interest  as  limited  partner.  Kaneb  Pipe  Line  Company  ("KPL"),  a
wholly-owned  subsidiary of Kaneb Services,  Inc. ("Kaneb"), as general partner,
holds a 1% general partner  interest in both the Partnership and KPOP.  KPL's 1%
interest  in  KPOP  is  reflected  as the  minority  interest  in the  financial
statements.  At December 31, 2000, KPL,  together with its affiliates,  owned an
approximate  28% interest as a limited  partner and as a general partner owned a
combined 2% interest.

         In July 1999, the Partnership  issued 2.25 million limited  partnership
units in a public offering at $30.75 per unit,  generating  approximately  $65.6
million in net proceeds. A portion of the proceeds was used to repay in full the
Partnership's  $15.0 million promissory note, the $25.0 million revolving credit
facility and $18.3 million in term loans  (including $13.3 million in term loans
resulting from the United Kingdom terminal acquisition referred to in Note 3).


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The  following  significant  accounting  policies  are  followed by the
Partnership in the preparation of the consolidated financial statements.

         Cash and cash equivalents

         The Partnership's policy is to invest cash in highly liquid investments
with original maturities of three months or less.  Accordingly,  uninvested cash
balances are kept at minimum levels.  Such investments are valued at cost, which
approximates  market,  and are classified as cash  equivalents.  The Partnership
does not have any derivative financial instruments.

         Property and equipment

         Property and equipment are carried at historical  cost.  Certain leases
have been  capitalized  and the leased assets have been included in property and
equipment.  Additions of new equipment and major  renewals and  replacements  of
existing  equipment are capitalized.  Repairs and minor replacements that do not
materially increase values or extend useful lives are expensed.  Depreciation of
property and equipment is provided on a straight-line  basis at rates based upon
expected useful lives of various classes of assets,  as disclosed in Note 4. The
rates used for  pipeline  and storage  facilities  of KPOP are the same as those
which have been promulgated by the Federal Energy Regulatory Commission.

         The carrying value of property and equipment is periodically  evaluated
using undiscounted  future cash flows as the basis for determining if impairment
exists under the  provisions  of Statement  of  Financial  Accounting  Standards
("SFAS") No. 121,  "Accounting  for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets to be Disposed Of". To the extent  impairment is indicated to
exist,  an impairment  loss will be recognized  under SFAS No. 121 based on fair
value.

         Revenue and income recognition

         KPOP provides pipeline transportation of refined petroleum products and
liquified petroleum gases. Revenue is recognized as services are provided.

         The Partnership's  Support Terminal Services  operation ("ST") provides
terminaling and other ancillary  services.  Storage fees are billed one month in
advance and are reported as deferred income.  Revenue is recognized in the month
services are provided.

         Foreign currency translation

         The Partnership  translates the balance sheet of its foreign subsidiary
using year-end  exchange rates and translates income statement amounts using the
average exchange rates in effect during the year. The gains and losses resulting
from  the  change  in  exchange  rates  from  year to year  have  been  reported
separately as a component of accumulated  other  comprehensive  income (loss) in
Partners' Capital. Gains and losses resulting from foreign currency transactions
are included in the statements of income.

         Environmental matters

         Environmental  expenditures  that  relate  to  current  operations  are
expensed or capitalized, as appropriate. Expenditures that relate to an existing
condition caused by past  operations,  and which do not contribute to current or
future  revenue  generation,   are  expensed.   Liabilities  are  recorded  when
environmental  assessments  and/or remedial efforts are probable,  and the costs
can be reasonably estimated.  Generally,  the timing of these accruals coincides
with the completion of a feasibility study or the Partnership's  commitment to a
formal plan of action.

         Comprehensive income

         The  Partnership  follows the  provisions  of SFAS No. 130,  "Reporting
Comprehensive Income", for the reporting and display of comprehensive income and
its components in a full set of general purpose financial  statements.  SFAS No.
130 only requires  additional  disclosure and does not affect the  Partnership's
financial position or results of operations.

         Estimates

         The preparation of the Partnership's financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

         Income tax considerations

         Income   before  income  tax  expense  is  made  up  of  the  following
components:
<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                          ---------------------------------------------------------
                                                              2000                  1999                  1998
                                                          -------------         -------------        --------------
         <S>                                              <C>                   <C>                  <C>
         Partnership operations......................     $  43,071,000         $  46,242,000        $   42,827,000
         Corporate operations:
              Domestic...............................           510,000               501,000             1,257,000
              Foreign................................         3,556,000             4,189,000                 -
                                                          -------------         -------------        --------------
                                                          $  47,137,000         $  50,932,000        $   44,084,000
                                                          =============         =============        ==============
</TABLE>

         Partnership  operations  are not  subject to  Federal  or state  income
taxes.  However,  certain  operations of ST are conducted  through  wholly-owned
corporate  subsidiaries  which are taxable  entities.  The  provision for income
taxes for the periods ended December 31, 2000, 1999 and 1998 primarily  consists
of deferred U.S. and foreign income taxes of $0.9 million,  $1.5 million and $.5
million,  respectively.  The net deferred tax liability of $5.9 million and $5.1
million at December  31, 2000 and 1999,  respectively,  consists of deferred tax
liabilities of $12.0 million and $12.0 million,  respectively,  and deferred tax
assets  of $6.1  million  and  $6.9  million,  respectively.  The  deferred  tax
liabilities consist primarily of tax depreciation in excess of book depreciation
and the deferred tax assets consist primarily of net operating losses.  The U.S.
corporate  operations  have net operating  loss  carryforwards  for tax purposes
totaling  approximately  $15.4  million which expire in years 2008 through 2020.
Additionally,  the  Partnership's  foreign  operations  have net operating  loss
carryforwards for tax purposes totaling  approximately $4.4 million which do not
have an expiration date.

         Since the income or loss of the operations which are conducted  through
limited  partnerships  will be  included  in the tax  returns of the  individual
partners of the Partnership,  no provision for income taxes has been recorded in
the accompanying  financial statements on these earnings. The tax returns of the
Partnership are subject to examination by Federal and state taxing  authorities.
If any such examination results in adjustments to distributive shares of taxable
income or loss, the tax liability of the partners would be adjusted accordingly.

         The tax  attributes  of the  Partnership's  net assets flow directly to
each  individual  partner.  Individual  partners will have different  investment
bases depending upon the timing and prices of acquisition of Partnership  units.
Further, each partner's tax accounting,  which is partially dependent upon their
individual  tax  position,  may  differ  from  the  accounting  followed  in the
financial  statements.  Accordingly,  there  could  be  significant  differences
between each individual partner's tax basis and their proportionate share of the
net assets reported in the financial  statements.  SFAS No. 109, "Accounting for
Income  Taxes,"  requires  disclosure  by a  publicly  held  partnership  of the
aggregate  difference  in the  basis of its net  assets  for  financial  and tax
reporting  purposes.  Management  does not believe  that,  in the  Partnership's
circumstances, the aggregate difference would be meaningful information.

         Cash distributions

         The Partnership makes quarterly  distributions of 100% of its Available
Cash, as defined in the Partnership Agreement, to holders of limited partnership
units ("Unitholders") and KPL. Available Cash consists generally of all the cash
receipts of the Partnership plus the beginning cash balance less all of its cash
disbursements and reserves. The Partnership expects to make distributions of all
Available  Cash within 45 days after the end of each quarter to  Unitholders  of
record on the applicable  record date.  Distributions of $2.80,  $2.80 and $2.60
per  Unit  were  declared  to all  classes  of Units  in  2000,  1999 and  1998,
respectively.

         Distributions  by the Partnership of its Available Cash are made 99% to
Unitholders and 1% to KPL, subject to the payment of incentive  distributions to
the  General  Partner  if certain  target  levels of cash  distributions  to the
Unitholders  are achieved.  The  distribution of Available Cash for each quarter
during the Preference Period, as defined, was subject to the preferential rights
of the holders of the Senior  Preference  Units  ("SPUs") to receive the Minimum
Quarterly  Distribution for such quarter,  plus any arrearages in the payment of
the Minimum Quarterly  Distribution for prior quarters,  before any distribution
of  Available  Cash was made to holders of  Preference  Units  ("PUs") or Common
Units ("CUs") for such  quarter.  The CUs were not entitled to arrearages in the
payment of the Minimum Quarterly Distribution. In general, the Preference Period
continued until such time as the Minimum Quarterly Distribution had been paid to
the holders of the SPUs,  the PUs and the CUs for twelve  consecutive  quarters.
Payment of the August 14, 1998 regular cash distribution represented the twelfth
consecutive  quarterly  distribution  of Available Cash  constituting  Cash from
Operations  in an  amount  equal  to or  exceeding  the $.55  Minimum  Quarterly
Distribution  specified in the Partnership Agreement.  Accordingly,  pursuant to
the terms of the Partnership Agreement, all differences and distinctions between
SPUs,  PUs and CUs  automatically  ceased as of such  date.  At that  time,  all
outstanding  units of limited  partnership  interest in the  Partnership  became
"Units,"  constituting a single class of equity  securities,  which trade on the
New York Stock Exchange under the symbol "KPP".

         Allocation of net income and earnings

         For the  periods  presented,  net  income  or loss has  been  allocated
between limited partner  interests and the general partner pro rata based on the
aggregate  amount of cash  distributions  declared  (including  general  partner
incentive distributions). Beginning in 1997, distributions by the Partnership of
Available  Cash  reached  the  Second  Target  Distribution,  as  defined in the
Partnership  Agreement,  which entitled the general partner to certain incentive
distributions at different levels of cash distributions. Earnings per Unit shown
on the  consolidated  statements of income are calculated by dividing the amount
of limited  partners'  interest in net income, by the weighted average number of
Units  outstanding.  If the  allocation of income had been made as if all income
had been distributed in cash, earnings per Unit would have been $2.49, $2.81 and
$2.66 for the years ended December 31, 2000, 1999 and 1998, respectively.

         Change in presentation

         Certain prior year financial  statement items have been reclassified to
conform with the 2000 presentation.

         Recent accounting pronouncements

         The Partnership has assessed the reporting and disclosure  requirements
of SFAS No. 133, "Accounting and Derivative Instruments and Hedging Activities",
which  establishes the accounting and reporting  standards for such  activities.
Under SFAS No. 133,  companies must recognize all derivative  instruments on its
balance  sheet at fair  value.  Changes in the value of  derivative  instruments
which are  considered  hedges,  will either be offset against the change in fair
value of the hedged item through earnings,  or recognized in other comprehensive
income until the hedged item is recognized in earnings,  depending on the nature
of the hedge. The Partnership will adopt SFAS No. 133, as amended,  in the first
quarter of 2001.  Currently,  the  Partnership  is not a party to any derivative
contracts,  and does not anticipate that adoption will have a material effect on
the Partnership's results of operations or financial position.


3.       ACQUISITIONS

         On January 3, 2001, the Partnership, through a wholly-owned subsidiary,
acquired  Shore  Terminals  LLC ("Shore") for $107 million in cash and 1,975,090
KPP Units.  Financing  for the cash portion of the  purchase  price was supplied
under a new $275 million  unsecured  revolving  credit agreement with a group of
banks (see Note 5). The  acquisition  will be accounted for,  beginning  January
2001, using the purchase method of accounting.

         On February 1, 1999, the Partnership, through two wholly-owned indirect
subsidiaries,  acquired six  terminals in the United  Kingdom from GATX Terminal
Limited for (pound)22.6 million  (approximately  $37.2 million) plus transaction
costs and the  assumption of certain  liabilities.  The  acquisition,  which was
initially financed with term loans from a bank, has been accounted for using the
purchase  method of  accounting.  $13.3 million of the term loans were repaid in
July 1999 with the proceeds from a public unit offering (see Notes 1 and 5). The
pro  forma  effect  of the  acquisition  was  not  material  to the  results  of
operations.

         On  October  30,  1998,   the   Partnership,   through  a  wholly-owned
subsidiary,   entered  into  acquisition  and  joint  venture   agreements  with
Northville  Industries  Corp.  ("Northville")  to acquire  and manage the former
Northville  terminal located in Linden,  New Jersey.  Under the agreements,  the
Partnership  acquired a 50% interest in the  newly-formed ST Linden Terminal LLC
for $20.5 million plus  transaction  costs.  The  investment  was funded by bank
financing  which was repaid using proceeds from the public unit offering in July
1999 (See Note 1). The investment is being accounted for by the equity method of
accounting,  with the excess  cost over net book value of the equity  investment
being  amortized  over the  life of the  underlying  assets.  During  1998,  the
Partnership  acquired other terminals and pipelines for aggregate  consideration
of $23.9 million.


4. PROPERTY AND EQUIPMENT

         The cost of property and equipment is summarized as follows:

<TABLE>
<CAPTION>
                                                        Estimated
                                                         Useful
                                                          Life                             December 31,
                                                                                -----------------------------------
                                                         (Years)                    2000                  1999
                                                     --------------             ---------------        ------------

         <S>                                         <C>                        <C>                  <C>
         Land....................................           -                   $  23,360,000        $   21,585,000
         Buildings...............................          35                       9,144,000             8,568,000
         Furniture and fixtures..................          16                       3,445,000             2,947,000
         Transportation equipment................           6                       4,469,000             4,469,000
         Machinery and equipment.................        20 - 40                   32,996,000            32,939,000
         Pipeline and terminaling equipment......        20 - 40                  378,123,000           364,396,000
         Construction work-in-progress...........           -                       7,389,000             4,633,000
                                                                                -------------        --------------
         Total property and equipment............                                 458,926,000           439,537,000
           Less accumulated depreciation.........                                 137,571,000           122,654,000
                                                                                -------------        --------------
         Net property and equipment..............                               $ 321,355,000        $  316,883,000
                                                                                =============        ==============
</TABLE>

5.       LONG-TERM DEBT
         Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                              -------------------------------------
                                                                                    2000                  1999
                                                                              ---------------        --------------
         <S>                                                                  <C>                    <C>
         First mortgage notes, repaid in January 2001....................     $   128,000,000        $  128,000,000
         $25 million revolving credit facility, repaid in January 2001...          15,000,000             2,200,000
         Term loan, due in January 2002..................................          23,900,000            25,787,000
         $275 million revolving credit facility, due in December 2003....               -                     -
                                                                              ---------------        --------------
         Total long-term debt............................................     $   166,900,000        $  155,987,000
                                                                              ===============        ==============
</TABLE>

         In December 2000, the Partnership  entered into a credit agreement with
a group of banks that  provides for a $275 million  unsecured  revolving  credit
facility through December 2003. The facility bears interest at variable interest
rates, and has a variable  commitment fee on the unutilized amounts and contains
certain  operational  and financial  covenants.  No amounts were drawn under the
facility at December  31, 2000.  At January 3, 2001 $257.5  million was drawn on
the facility at a interest rate of 6.31%, which is due in December of 2003.

         In  January   1999,   the   Partnership,   through   two   wholly-owned
subsidiaries,  entered into a credit agreement with a bank that provided for the
issuance of $39.2  million in term loans in connection  with the United  Kingdom
terminal  acquisition and $5.0 million for general Partnership  purposes.  $18.3
million of the term loans were  repaid in July 1999 with the  proceeds  from the
public unit offering.  The remaining portion ($23.9 million),  with a fixed rate
of 7.14%, is due in January 2002. The term loans under the credit agreement,  as
amended, are unsecured and are pari passu with the $275 million revolving credit
facility.  The  term  loans  also  contain  certain  financial  and  operational
covenants.

         In 1994,  a  wholly-owned  subsidiary  entered  into a restated  credit
agreement  with a group of banks that,  as amended,  provided  for a $25 million
revolving  credit facility through January 31, 2001. At December 31, 2000, $15.0
million  was drawn  under the  credit  facility.  In  January  2001,  the credit
facility was repaid in full with the proceeds  from the new $275 million  credit
facility.

         The $128 million of first  mortgage  notes  outstanding at December 31,
2000 and 1999,  which were due in varying amounts from 2001 to 2016, were repaid
in full in January of 2001 with the proceeds from the new $275 million revolving
credit  facility.  Under the provisions of the mortgage  notes,  the Partnership
incurred a $6.3  million  prepayment  penalty,  which will be  recognized  as an
extraordinary expense in the first quarter of 2001.


6.       COMMITMENTS AND CONTINGENCIES

         The following is a schedule by years of future  minimum lease  payments
under operating leases as of December 31, 2000:

         Year ending December 31:

              2001...........................................    $   2,027,000
              2002...........................................        1,440,000
              2003...........................................          907,000
              2004...........................................          640,000
              2005...........................................          320,000
                                                                 -------------
              Total minimum lease payments...................    $   5,334,000
                                                                 =============

         Total rent expense  under  operating  leases  amounted to $3.1 million,
$2.2  million and $1.1 million for the years ended  December 31, 2000,  1999 and
1998, respectively.

         The  operations of the  Partnership  are subject to Federal,  state and
local laws and regulations in the United States and the United Kingdom  relating
to  protection  of  the  environment.  Although  the  Partnership  believes  its
operations are in general compliance with applicable environmental  regulations,
risks of additional  costs and liabilities are inherent in pipeline and terminal
operations, and there can be no assurance that significant costs and liabilities
will not be incurred by the  Partnership.  Moreover,  it is possible  that other
developments, such as increasingly stringent environmental laws, regulations and
enforcement policies  thereunder,  and claims for damages to property or persons
resulting  from the operations of the  Partnership,  could result in substantial
costs and  liabilities  to the  Partnership.  The  Partnership  has  recorded an
undiscounted  reserve for environmental  claims in the amount of $8.0 million at
December 31, 2000,  including $7.3 million  related to acquisitions of pipelines
and terminals. During 2000 and 1999, respectively, the Partnership incurred $2.3
million  and $0.9  million of costs  related to such  acquisition  reserves  and
reduced the liability accordingly.

         KPL has indemnified the Partnership  against  liabilities for damage to
the  environment  resulting from  operations of the pipeline prior to October 3,
1989 (the date of formation of the Partnership).  The  indemnification  does not
extend to any  liabilities  that arise  after  such date to the extent  that the
liabilities result from changes in environmental laws and regulations.

         In December  1995,  the  Partnership  acquired the liquids  terminaling
assets of Steuart  Petroleum  Company and certain of its  affiliates.  The asset
purchase  agreement  includes a  provision  for an earn-out  payment  based upon
revenues of one of the terminals  exceeding a specified  amount for a seven-year
period  ending in  December  2002.  No amount  was  payable  under the  earn-out
provision in 1998, 1999 or 2000.

         On April 7, 2000,  a fuel oil  pipeline  in  Maryland  owned by Potomac
Electric  Power  Company  ("PEPCO")  ruptured.  The  pipeline  was operated by a
partnership of which ST is general  partner.  PEPCO has reported  that,  through
December  2000,  it incurred  approximately  $66  million in clean-up  costs and
expects to incur total  cleanup  costs of $70 million to $75 million.  Since May
2000,  ST has  participated  provisionally  in a minority  share of the  cleanup
expense,  which has been funded by ST's insurance  carriers.  KPP cannot predict
the amount,  if any, that  ultimately  may be determined to be ST's share of the
remediation  expense,  but it  believes  that such  amount  will be  covered  by
insurance and will not materially affect KPP's financial condition.

         As a result of the rupture,  purported class actions have been filed in
federal and state court in Maryland by property  and/or business owners alleging
damages in  unspecified  amounts  against PEPCO and ST under  various  theories,
including  the federal Oil Pollution  Act. The court has ordered a  consolidated
complaint to be filed in this action.  ST's insurance  carriers have assumed the
defense of these actions.  While KPP cannot  predict the amount,  if any, of any
liability  it may have in these  suits,  it believes  that such  amounts will be
covered by insurance  and that these  actions  will not have a material  adverse
effect on its financial condition.

         PEPCO and ST have  agreed  with the State of  Maryland  to pay costs of
assessing natural resource damages under the federal Oil Pollution Act, but they
cannot  predict  at this time the amount of any  damages  that may be claimed by
Maryland.  KPL  believes  that both the  assessment  costs and such  damages are
covered by insurance and will not materially affect KPP's financial condition.

         The U.S.  Department of Transportation  has issued a Notice of Proposed
Violation to PEPCO and ST alleging  violations  over  several  years of pipeline
safety  regulations  and  proposing a civil  penalty of  $674,000.  ST and PEPCO
intend to contest the  allegations of violations and the proposed  penalty.  The
ultimate  amount of any penalty  attributable to ST cannot be determined at this
time, but KPL believes that this matter will not have a material effect on KPP's
financial condition.

         Certain  subsidiaries  of the  Partnership  were sued in a Texas  state
court in 1997 by Grace Energy Corporation  ("Grace"),  the entity from which the
Partnership  acquired ST Services in 1993.  The lawsuit  involves  environmental
response and  remediation  allegedly  resulting from jet fuel leaks in the early
1970's from a pipeline.  The pipeline,  which  connected a former Grace terminal
with Otis Air Force  Base in  Massachusetts,  was  abandoned  in 1976,  when the
connecting terminal was sold to an unrelated entity.

         Grace  alleged  that  subsidiaries  of  the  Partnership  acquired  the
abandoned  pipeline,  as part of the  acquisition  of ST Services  in 1993,  and
assumed  responsibility  for  environmental  damages allegedly caused by the jet
fuel leaks.  Grace sought a ruling that these  subsidiaries  are responsible for
all present and future  remediation  expenses for these leaks and that Grace has
no obligation to indemnify these subsidiaries for these expenses.

         In the lawsuit,  Grace also sought indemnification for expenses that it
has  incurred  since  1996  of  approximately  $3.5  million  for  response  and
remediation  required by the State of Massachusetts and for additional  expenses
that  it  expects  to  incur  in the  future.  The  consistent  position  of the
Partnership's  subsidiaries is that they did not acquire the abandoned  pipeline
as  part  of  the  1993  ST  transaction,  and  therefore  did  not  assume  any
responsibility  for the environmental  damage nor any liability to Grace for the
pipeline.

         At the end of the trial on May 19,  2000,  the jury  returned a verdict
including  findings that Grace had breached a provision of the 1993  acquisition
agreement and that the pipeline was  abandoned  prior to 1978. On July 17, 2000,
the Judge  entered  final  judgment  in the case,  which is now on appeal to the
Dallas Court of Appeals,  that Grace take nothing from the  subsidiaries  on its
claims,  including  claims  for  future  expenses.  Although  the  Partnership's
subsidiaries  have not incurred any expenses in connection with the remediation,
the court also ruled, in effect,  that the subsidiaries would not be entitled to
an indemnification  from Grace if any such expenses were incurred in the future.
However,  the Judge let stand a prior summary  judgment ruling that the pipeline
was an asset of the Partnership acquired as part of the 1993 ST transaction. The
Judge also awarded attorney fees to Grace.

         While the judgment  means that the  subsidiaries  have no obligation to
reimburse Grace for the approximately $3.5 million it has incurred,  as required
by the State of  Massachusetts,  the  Partnership's  subsidiaries  have filed an
appeal of the judgment  finding that the Otis Pipeline was  transferred  to them
and the award of attorney fees.

         The  Otis  Air  Force  Base  is a part  of the  Massachusetts  Military
Reservation  ("MMR"),  which has been declared a Superfund  Site pursuant to the
Comprehensive  Environmental  Response,  Compensation and Liability Act. The MMR
Site contains nine groundwater  contamination plumes, two of which are allegedly
associated  with the  pipeline,  and  various  other waste  management  areas of
concern,  such as  landfills.  The United  States  Department of Defense and the
United States Coast Guard, pursuant to a Federal Facilities Agreement, have been
responding to the Government  remediation  demand for most of the  contamination
problems at the MMR Site.  Grace and others have also  received and responded to
formal  inquiries  from the United  States  Government  in  connection  with the
environmental   damages  allegedly  resulting  from  the  jet  fuel  leaks.  The
Partnership's  subsidiaries have voluntarily responded to an invitation from the
Government to provide information  indicating that they do not own the pipeline.
In connection with a court-ordered mediation between Grace and the subsidiaries,
the Government  advised the parties in April 1999 that it has identified the two
spill areas that it believes to be related to the  pipeline  that is the subject
of the Grace suit.  The  Government  advised the parties that it believes it has
incurred costs of approximately $34 million,  and expects in the future to incur
costs of approximately  $55 million,  for remediation of one of the spill areas.
This amount was not intended to be a final accounting of costs or to include all
categories of costs.  The Government  also advised the parties that it could not
at that time  allocate  its costs  attributable  to the second  spill area.  The
Partnership   believes  that  the  ultimate  cost  of  the  remediation,   while
substantial, will be considerably less than the Government has indicated.

         The Government has made no claims against the  Partnership or any other
person on account of this  matter.  The  Partnership  believes  that if any such
claims  were made,  its  subsidiaries  would have  substantial  defenses to such
claims.  Under  Massachusetts  law, the party  responsible  for remediation of a
facility is the last owner before the  abandonment,  which was a Grace  company.
The Partnership  does not believe that either the Grace litigation or any claims
that may be made by the  Government  will  adversely  affect its ability to make
cash  distributions to its  unitholders,  but there can be no assurances in that
regard.

         The  Partnership  has  other  contingent   liabilities  resulting  from
litigation,  claims and commitments incident to the ordinary course of business.
Management  believes,  based  on  the  advice  of  counsel,  that  the  ultimate
resolution of such  contingencies  will not have a materially  adverse effect on
the financial position or results of operations of the Partnership.


7.       RELATED PARTY TRANSACTIONS

         The  Partnership has no employees and is managed and controlled by KPL.
KPL and Kaneb are entitled to  reimbursement  of all direct and  indirect  costs
related to the  business  activities  of the  Partnership.  These  costs,  which
totaled  $13.0  million,  $11.9  million  and $11.3  million for the years ended
December  31,  2000,  1999 and  1998,  respectively,  include  compensation  and
benefits  paid to officers and employees of KPL and Kaneb,  insurance  premiums,
general and administrative costs, tax information and reporting costs, legal and
audit fees.  Included in this amount is $11.0  million,  $10.3  million and $9.3
million of compensation and benefits,  paid to officers and employees of KPL for
the years ended December 31, 2000, 1999 and 1998, respectively,  which represent
the actual amounts paid by KPL or Kaneb. In addition,  the Partnership  paid $.2
million during each of these respective years for an allocable  portion of KPL's
overhead expenses.  At December 31, 2000 and 1999, the Partnership owed KPL $1.9
million and $1.4 million,  respectively,  for these expenses which are due under
normal invoice terms.


8.       BUSINESS SEGMENT DATA

         The Partnership conducts business through two principal operations; the
"Pipeline Operations," which consists primarily of the transportation of refined
petroleum  products  in the  Midwestern  states  as a  common  carrier,  and the
"Terminaling   Operations,"  which  provide  storage  for  petroleum   products,
specialty chemicals and other liquids.

         The  Partnership  measures  segment profit as operating  income.  Total
assets are those assets controlled by each reportable segment.

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                ------------------------------------------------------
                                                                       2000                1999              1998
                                                                ----------------    ---------------     --------------
         <S>                                                    <C>                 <C>                 <C>
         Business segment revenues:
           Pipeline operations................................  $     70,685,000    $    67,607,000     $   63,421,000
           Terminaling operations.............................        85,547,000         90,421,000         62,391,000
                                                                ----------------    ---------------     --------------
                                                                $    156,232,000    $   158,028,000     $  125,812,000
                                                                ================    ===============     ==============
         Business segment profit:
           Pipeline operations................................  $     36,213,000    $    35,836,000     $   33,630,000
           Terminaling operations.............................        22,232,000         28,577,000         21,573,000
                                                                ----------------    ---------------     --------------
              Operating income................................        58,445,000         64,413,000         55,203,000
           Interest expense...................................       (12,283,000)       (13,390,000)       (11,304,000)
           Interest and other income .........................         1,442,000            408,000            626,000
                                                                ----------------    ---------------     --------------
              Income before minority interest and
                income taxes..................................  $     47,604,000    $    51,431,000     $   44,525,000
                                                                ================    ===============     ==============
         Business segment assets:
           Depreciation and amortization:
              Pipeline operations.............................  $      5,180,000    $     5,090,000     $    4,619,000
              Terminaling operations..........................        11,073,000          9,953,000          7,529,000
                                                                ----------------    ---------------     --------------
                                                                $     16,253,000    $    15,043,000     $   12,148,000
                                                                ================    ===============     ==============
         Capital expenditures (excluding acquisitions):
           Pipeline operations................................  $      3,439,000    $     3,547,000     $    5,020,000
           Terminaling operations.............................         6,044,000         11,021,000          4,381,000
                                                                ----------------    ---------------     --------------
                                                                $      9,483,000    $    14,568,000     $    9,401,000
                                                                ================    ===============     ==============
<PAGE>
                                                                                       December 31,
                                                                ------------------------------------------------------
                                                                      2000                1999               1998
                                                                ----------------    ---------------     --------------
         Total assets:
           Pipeline operations................................  $    102,656,000    $   104,774,000     $  103,966,000
           Terminaling operations.............................       272,407,000        261,179,000        204,466,000
                                                                ----------------    ---------------     --------------
                                                                $    375,063,000    $   365,953,000     $  308,432,000
                                                                ================    ===============     ==============
</TABLE>

         The  following  geographical  area  data  includes  revenues  based  on
location  of the  operating  segment and net  property  and  equipment  based on
physical location.

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                ------------------------------------------------------
                                                                       2000                1999              1998
                                                                ----------------    ---------------     --------------
         <S>                                                    <C>                 <C>                 <C>
         Geographical area revenues:
           United States......................................  $    136,729,000    $   136,197,000     $  125,812,000
           United Kingdom.....................................        19,503,000         21,831,000                -
                                                                ----------------    ---------------     --------------
                                                                $    156,232,000    $   158,028,000     $  125,812,000
                                                                ================    ===============     ==============
         Geographical area operating income:
           United States......................................  $     53,996,000    $    58,539,000     $   55,203,000
           United Kingdom.....................................         4,449,000           5,874,000               -
                                                                ----------------    ----------------    --------------
                                                                $     58,445,000    $    64,413,000     $   55,203,000
                                                                ================    ===============     ==============
         Geographical area net property and equipment:
           United States......................................  $    282,685,000    $   275,178,000     $  268,626,000
           United Kingdom.....................................        38,670,000         41,705,000                -
                                                                ----------------    ---------------     --------------
                                                                $    321,355,000    $   316,883,000     $  268,626,000
                                                                ================    ===============     ==============
</TABLE>


 9.      FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

         The  estimated  fair value of all debt as of December 31, 2000 and 1999
was  approximately  $174 million and $163  million,  as compared to the carrying
value of $167  million and $156  million,  respectively.  These fair values were
estimated  using  discounted  cash  flow  analysis,  based on the  Partnership's
current incremental borrowing rates for similar types of borrowing arrangements.
These  estimates  are not  necessarily  indicative  of the amounts that would be
realized  in a  current  market  exchange.  The  Partnership  has no  derivative
financial instruments.

         The  Partnership  markets  and sells its  services  to a broad  base of
customers  and  performs  ongoing  credit  evaluations  of  its  customers.  The
Partnership  does not believe it has a significant  concentration of credit risk
at December 31, 2000. No customer constituted 10 percent or more of consolidated
revenues in 2000, 1999 or 1998.

<PAGE>
10.      QUARTERLY FINANCIAL DATA (unaudited)

         Quarterly  operating  results  for  2000 and  1999  are  summarized  as
follows:

<TABLE>
<CAPTION>

                                                                            Quarter Ended
                                            --------------------------------------------------------------------------
                                                March 31,           June 30,         September 30,       December 31,
                                            ----------------    ----------------    ---------------     --------------
         <S>                                <C>                 <C>                 <C>                 <C>
         2000:
         Revenues.....................      $     36,680,000    $     38,438,000    $    41,051,000     $   40,063,000
                                            ================    ================    ===============     ==============
         Operating income.............      $     12,922,000    $     14,959,000    $    17,466,000     $   13,098,000
                                            ================    ================    ===============     ==============
         Net income...................      $      9,567,000    $     11,882,000    $    14,119,000     $   10,626,000 (a)
                                            ================    ================    ===============     ==============
         Allocation of net income
           per Unit...................      $            .50    $            .63    $           .75     $          .55
                                            ================    ================    ===============     ==============
         1999:
         Revenues.....................      $     36,845,000    $     39,171,000    $    41,573,000     $   40,439,000
                                            ================    ================    ===============     ==============
         Operating income.............      $     15,144,000    $     15,467,000    $    17,451,000     $   16,351,000
                                            ================    ================    ===============     ==============
         Net income...................      $     11,356,000    $     11,413,000    $    13,835,000     $   12,832,000
                                            ================    ================    ===============     ==============
         Allocation of net income
           per Unit...................      $            .68    $            .69    $           .76     $          .68
                                            ================    ================    ===============     ==============

</TABLE>

         (a) Includes approximately $1.9 million of accrued litigation costs.

<PAGE>
                          INDEPENDENT AUDITORS' REPORT




To the Partners of
Kaneb Pipe Line Partners, L.P.


We have  audited  the  consolidated  financial  statements  of Kaneb  Pipe  Line
Partners,  L.P. and its subsidiaries (the  "Partnership") as listed in the index
appearing  under  Item  14(a)(1)  on  page  29.  These  consolidated   financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of the Partnership and
its  subsidiaries  as of December  31,  2000 and 1999,  and the results of their
operations  and their cash flows for each of the years in the three year  period
ended  December 31, 2000, in conformity  with  accounting  principles  generally
accepted in the United States of America.


KPMG LLP
Dallas, Texas
March 2, 2001



<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Kaneb Pipe Line Partners, L.P. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                      KANEB PIPE LINE PARTNERS, L.P.
                                      By:      Kaneb Pipe Line Company
                                               General Partner

                                      By:      EDWARD D. DOHERTY
                                               Chairman of the Board and
                                               Chief  Executive Officer
                                               Date:    March 16, 2001

         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
Kaneb  Pipe Line  Partners,  L.P.  and in the  capacities  with  Kaneb Pipe Line
Company and on the date indicated.

      Signature                            Title                      Date

Principal Executive Officer
          EDWARD D. DOHERTY         Chairman of the Board         March 16, 2001
                                    and Chief Executive Officer

Principal Accounting Officer
          JIMMY L. HARRISON         Executive Vice President      March 16, 2001
                                    and Controller

Directors

          SANGWOO AHN               Director                      March 16, 2001

          JOHN R. BARNES            Director                      March 16, 2001

          M.R. BILES                Director                      March 16, 2001

          FRANK M. BURKE, JR.       Director                      March 16, 2001

          CHARLES R. COX            Director                      March 16, 2001

          HANS KESSLER              Director                      March 16, 2001

          JAMES R. WHATLEY          Director                      March 16, 2001



<PAGE>
                                  Exhibit Index

3.1      Amended and Restated  Agreement of Limited  Partnership dated September
         27, 1989, as revised July 23, 1998.

10.7     Revolving Credit  Agreement,  dated as of December 28, 2000 among Kaneb
         Pipe Line Operating Partnership,  L.P., Kaneb Pipe Line Partners, L.P.,
         The Lenders  From Time To Time Party  Hereto,  and  SunTrust  Bank,  as
         Administrative Agent.

22       List of Subsidiaries.

23       Consent of KPMG LLP.